Shares of Vertiv, the provider of liquid cooling systems chilling the computers running generative AI, have soared more than 10-fold in the last two years.
Vertiv’s outstanding stock market performance has not surprised me. The company’s technology is essential for removing the heat generated by the computers training and operating generative AI models such as ChatGPT, according to my book Brain Rush.
Despite the big rise in Vertiv stock — a winner in my Generative AI Stock Index — the Stargate AI project could create even more demand for Vertiv’s products, according to InvestorPlace.
Moreover, the company’s optimism after its most recent earnings report and more recent strong growth forecasts suggest upside to the stock.
Vertiv’s Strong Performance And Prospects
Vertiv’s latest earnings report prompted bullish thoughts last November, according to my Forbes post. Since then, the company’s shares have increased 16%.
Last October Vertiv raised its sales forecast for fiscal year 2024 and “exceeded expectations for Q3 results,” according to Investing.com. Vertiv’s $2.07 billion in Q3 2024 revenue exceeded investor expectations while the company forecast about $7.8 billion in 2024 revenue — $70 million ahead of analyst estimates, noted Investing.com.
Vertiv’s strong financial performance derives from its market leadership in a rapidly growing industry. “We estimate they are the largest provider of thermal equipment and the second-largest vendor of electrical equipment to data centers globally,” noted BofA Securities.
This year Gartner projects spending on data center systems will grow faster than overall IT spending. More specifically, the firm forecast a 34% rise in 2024 data center systems spending to $318 billion — with 15.5% growth to $367 billion in 2025, “outpacing the 9.3% rise that Gartner projects for overall global IT spending,” Investor’s Business Daily reported.
In November, Vertiv raised its forecast for organic growth and profitability. More specifically, the company issued an upward revision of its compound annual growth rate through 2029— expecting a 12% to 14% CAGR over the period. In 2029, Vertiv forecasts sales of about $14.4 billion and a higher margin target of 25%, Investing.com noted.
How Stargate AI Project Could Boost Demand For Vertiv’s Technology
The Stargate AI project — a joint venture between the White House, OpenAI, Oracle, and SoftBank — could invest up to $500 billion in U.S. advanced AI infrastructure by 2029, according to InvestorPlace.
These funds would be spent in part on the construction of data centers and energy systems to build advanced AI models aimed at achieving Artificial General Intelligence.
Investors boosted shares of companies supplying the technology required to complete the project. Following the announcement, Nvidia’s stock price increased 5%, AI chip designer Arm’s rose about 15%, and shares of Vertiv, chip design firm Lam Research, and semiconductor manufacturing equipment provider Applied Materials also rallied on the news, noted InvestorPlace.
Where Will Vertiv Stock Go Next?
Surprisingly, Wall Street analysts see Vertiv as slightly overvalued. That is the conclusion of 14 Wall Street who estimate the company’s stock needs to drop 3.2% to reach their average target of $145 a share, noted TipRanks.
Individual analysts appear more bullish. For example, Evercore ISI and Morgan Stanley maintained an outperform rating on Vertiv due to their confidence in the company’s growth — both setting price targets of $150 a share, according to Investing.com.
Mutual funds eagerly purchased shares of Vertiv in 2024. For example, 1,850 of the funds owned Vertiv stock in September — a 25% increase from the number of funds owning the stock in March, according to IBD.
As more capital pours into building AI data centers, Vertiv is well positioned to benefit from the need to keep them cool. That demand could enable the company to keep beating expectations and raising guidance — potentially boosting Vertiv’s stock price.
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