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The rise of big data, artificial intelligence (AI), cloud computing, and Internet of Things (IoT) technologies is driving an unprecedented increase in data storage and processing capabilities. This has also led to a rapid increase in the demand for data center stocks.
Ohio-based Vertiv Holdings (VRT), a rising player in the data center market, remained relatively unknown and undervalued until Nvidia (NVDA) put it in the spotlight. Vertiv designs and manufactures critical digital infrastructure products and services for a variety of industries, including data centers, telecommunications, healthcare, and manufacturing.
Vertiv joined the Nvidia Partner Network (NPN) in March as a consultant partner, offering its entire power and cooling solution portfolio. As AI demands accelerated computing, Vertiv will address all of Nvidia’s unique infrastructure challenges.
Vertiv stock is up 150% in the year to date, outperforming the broader market. Wall Street rates the stock a "Strong Buy" based on projected double-digit earnings growth over the next two years. Plus, analysts believe the stock could rally 20% to 30% over the next 12 months.
Let’s find out if it is the right time to buy this data center stock now.
Vertiv Is a Key Player in the Data Center Space
Vertiv’s portfolio includes products such as uninterruptible power supplies (UPS), thermal management systems, and racks, among others, to ensure the best performance of digital systems. It also offers maintenance, monitoring, and consulting services to help customers increase efficiency.
In the third quarter, Vertiv reported $2.07 billion in revenue, marking a 19% year-over-year increase. This performance was driven by strong demand for critical digital infrastructure products and services. Adjusted earnings per share rose 46% to $0.76 per share. The company generated $336 million in adjusted free cash flow, a 52% increase over the prior-year quarter.
Management believes, “With even more room for operational improvement and the AI phase of the digital age just beginning, Vertiv has a long runway to accelerate growth and create even greater shareholder value.”
As part of the collaboration deal, Vertiv will build and provide “state-of-the-art liquid cooling solutions for next-gen NVIDIA-accelerated data centers powered by GB200 NVL72 systems.”
Nvidia’s decision to hire Vertiv as a consultant partner and solution advisor demonstrates its trust in the company. This will also help Vertiv attract more strategic partnerships in the future, thereby increasing its capabilities and market share.
For the full year 2024, management expects net sales to increase by 13% to 15%, with adjusted diluted EPS ranging from $2.66 to $2.70. The company also expects to generate adjusted free cash flow ranging from $975 million to $1.025 billion to fund its growth initiatives.
Meanwhile, analysts predict Vertiv’s revenue and earnings will increase by 14% and 51.9% in 2024. Revenue and earnings are further expected to increase by 18% and 32.8% in 2025.
What Does Wall Street Say About Vertiv Stock?
Overall, Wall Street analysts have generally positive views on Vertiv stock, rating it a “Strong Buy.” Recently, Evercore ISI and Bank of America Securities placed “Buy” ratings on VRTV stock, holding price targets of $150 and $134.58, respectively.
Out of the 14 analysts that cover the stock, 13 rate it a “Strong Buy,” and one rates it is a “Hold.” Its mean target price of $144.69 implies the stock can climb by 21.8% over the next 12 months. Its Street-high estimate of $161 implies upside potential of 35.6% from current levels.
The long-term growth trajectory of the data center market indicates that demand will remain strong. And Vertiv’s emphasis on innovation and geographic expansion positions it well to capitalize on this industry shift. However, at 33 times forward 2025 earnings, Vertiv stock is a little pricey. Investors interested in this outstanding growth stock might just have to wait for a better entry point.
