Why Are Analysts Obsessed With Vertiv Stock (NYSE: VRT)?

At first glance, Vertiv Holdings Co (NYSE: VRT) might not sound like the most exciting company. After all, they largely make cooling products. 

Yet the stock is up 145% this year, and continues to make new highs:

Chart courtesy TradingView

But what’s even more interesting is the recent analyst sentiment. 

On October 24th, a slew of top analysts issued new Buy and Strong Buy ratings for the stock:

See analyst color and VRT price targets here.

So what’s going on under the hood at Vertiv? 

Well, it turns out those cooling products (or to be more precise: thermal management solutions) are largely used in data centers … and with the AI trend continuing to take off, VRT’s liquid cooling solution is becoming a must-have in the data center build-out of 2024 and 2025. 

Why? 

Because the surge in demand for AI applications is driving a massive expansion of data centers, and with it comes the need for more efficient cooling. 

If you own a laptop, you might know that using significant compute or processing makes your machine “run hot.”

And AI workloads are far more energy-intensive than traditional computing tasks, generating significant amounts of heat. 

Vertiv’s liquid cooling solutions offer a more effective way to manage this heat compared to traditional air-cooling methods. 

Liquid cooling directly targets the heat at its source, improving energy efficiency and maintaining optimal performance of high-powered servers that power AI applications. 

As data centers strive to meet the soaring computational demands of AI while keeping energy costs manageable, Vertiv’s thermal management technology has quickly become a critical component in building the next generation of data infrastructure.

Analysts agree … and their recent buy ratings largely come off the back of management’s discussion of a record pipeline and accelerated product demand going forward. 

VRT CEO Giordano Albertazzi commented: “Vertiv’s strong performance in Q3 was driven by robust underlying demand for our critical digital infrastructure products and services, our continued and unrelenting focus on strong operational execution, and Vertiv’s unique market position in enabling AI and other critical applications for the data center.”

“We are very encouraged by the acceleration of liquid cooling revenue, which is a visible contributor to our Q3 results, despite a yet immature market.”

"Pipelines continue to grow.”

"There are clear indications of an acceleration in AI development that is truly encouraging, and which is driving demand across our entire AI-enabling portfolio of power, thermal, IT systems, infrastructure solutions and services.”

Currently, VRT screens well with the exception of its valuation: 

Click here for a breakdown of VRT valuation.

As you might expect from an AI play, VRT trades at a rich price-earnings ratio:

• It’s poor value based on its earnings relative to its share price (83.36x), compared to the US market average (27.65x)

That said, if we look at the forward P/E - it comes in at a more reasonable 35x. 

So it’s still richer than the broader market … but not necessarily egregious for a company growing so quickly:

• VRT's earnings are forecast to grow at an exceptional rate of 46.68% per year
• VRT's Return on Equity is forecast to be high in 4 years (118.34%); analysts are confident in the firm's ability to efficiently generate return on equity

Plus, it’s worth noting that aside from valuation, VRT scores well in terms of financials, forecast, and performance. Here are a few highlights from our due diligence checks in each category:

• Financials: VRT's profit margin has increased (+3.9%) in the last year from (3.8%) to (7.7%). Currently, VRT's Earnings (EBIT) of $870.10M can safely cover interest payments on company debt ($3.09B).
• Forecast: VRT's Return on Equity is forecast to be high in 4 years (104.92%); analysts are confident in the firm's ability to efficiently generate return on equity.
• Performance: VRT's earnings have grown faster (135.72% per year) than the US Electrical Equipment & Parts Industry average (56.32%). Additionally, VRT's earnings growth is accelerating - its growth over the last year (129.85%) is above its 5-year compound annual rate. 

Overall, for investors looking for an AI play outside of the typical Mag 7 and semiconductor areas, VRT is certainly worth keeping an eye on. 

Click here to analyze VRT and add it to your watchlist.

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