Core Insights - VRT has shown significant bottom-line improvements attributed to gross margins of 34.5% (+2 points YoY) and adjusted operating margins of 15.1% (+3.6 points YoY) due to better supply chain conditions and higher average selling prices (ASPs) [1][2] - The company has raised its FY2024 guidance, projecting net sales of $7.61B (+11.9% YoY), adjusted operating margin of 17.5% (+2.2 points YoY), and adjusted EPS of $2.32 (+31% YoY) [2] - VRT is well-positioned to fund growth opportunities internally, with free cash flow generation of $10 million (+30% YoY) and FY2024 free cash flow guidance of $825 million (+6% YoY) [3] Financial Performance - VRT's FQ1'24 earnings reported net sales of $1.63B (+7.2% YoY) and adjusted EPS of $0.43 (+79.1% YoY), driven by strong product sales and SaaS revenues [7] - The backlog has grown from $5.52B in FQ423 to $6.3B in FQ1'24, with a book-to-bill ratio of 1.5x, indicating strong demand [9] - The company has raised its FY2024 capex guidance to $200 million (+56.3% YoY) to enhance manufacturing capacity [16] Market Position and Trends - VRT operates in the data center infrastructure sector, focusing on power management and thermal management solutions, which are critical during the ongoing cloud transition and AI boom [6] - The company has strategic partnerships with major tech firms like Nvidia and Intel, which are expected to drive future growth [6][7] - International demand remains strong, particularly in the APAC and EMEA regions, with product sales and SaaS revenues showing positive growth [8] Valuation and Growth Projections - VRT's forward EV/EBIT valuation is 26.83x, significantly higher than the sector median of 15.44x, reflecting market optimism [18] - Consensus estimates suggest VRT will achieve a CAGR of +12% in revenue and +30.3% in adjusted EPS through FY2026 [19] - The company has a relatively higher net-debt-to-EBITDA ratio of 2.44x, which may pose risks despite its strong cash flow generation [13] Investment Considerations - VRT's stock has shown potential for capital appreciation, with a long-term price target of $149.90 based on consensus FY2026 adjusted EPS estimates [21] - The company offers quarterly dividends, providing a decent income stream for investors [21] - Recent insider selling has occurred, with $1.62B of shares sold in the last twelve months, balanced by management's share repurchases [21]

Core Insights - Vertiv experienced a significant increase in orders, with a 60% year-over-year jump in the first quarter of 2024 and a backlog growth of approximately 33% to $6.3 billion, most of which will be delivered beyond 2024 [1] - The company anticipates second-quarter 2024 revenues between $1.9 billion and $1.95 billion, reflecting an organic growth rate of 11-13% year-over-year, with expected non-GAAP earnings between 53 cents and 57 cents per share [2][14] - The Zacks Consensus Estimate for 2024 revenues is projected at $7.72 billion, indicating a year-over-year growth of 12.46%, with earnings expected at $2.42 per share, representing a 36.72% increase [3] Revenue and Earnings Projections - For the second quarter of 2024, the Zacks Consensus Estimate for revenues is pegged at $1.94 billion, indicating a year-over-year growth of 12.1%, with earnings expected at 59 cents per share, showing a 28.26% year-over-year growth [6] - The consensus mark for 2025 revenues is currently at $8.61 billion, suggesting an 11.61% growth, with earnings estimated at $3.13 per share, reflecting a slight increase over the past 30 days [7] Market Position and Demand Drivers - Vertiv specializes in cooling and power management infrastructure technologies, primarily serving data center providers, and is benefiting from strong AI-driven order growth [4] - The company is expanding its capacity across various solutions, including liquid cooling and thermal management, to meet the increasing demand driven by AI [8] - The production of next-generation chips for AI liquid cooling is underway, with Vertiv accelerating capacity through the production of CoolTera CDU in two global manufacturing facilities [9] Financial Health and Growth Strategy - Vertiv expects strong order growth in the second quarter of 2024, supported by solid AI-related demand, which is anticipated to positively impact order and sales growth in 2025 [5] - The company has expanded its capacity by over 100% for switchgear, busway, and modular solutions since acquiring the E&I Engineering business in November 2021 [15] - Vertiv's expected free cash flow for 2024 is between $800 million and $850 million, and it anticipates net leverage to decline to two times or lower by the third quarter [17]

Core Viewpoint - Vertiv has gained investor attention following a mention by Nvidia's CEO, indicating potential growth opportunities tied to the AI and data center sectors [2][10]. Company Overview - Vertiv, previously a subsidiary of Emerson Electric, was sold to private equity in 2016 and went public in 2020 through a SPAC [3]. - The company specializes in engineering and manufacturing power delivery and management systems for data centers [4]. Recent Developments - Vertiv's integration into Nvidia's ecosystem is seen as a significant growth driver, with a reported 15% increase in backlog of equipment and service orders, reaching $6.3 billion from late 2023 to early 2024 [5]. - The stock has experienced a notable rise, with a current market cap exceeding $36 billion, reflecting a valuation of nearly 40 times the expected 2024 earnings per share [6][8]. Market Dynamics - The rapid installation of AI in data centers is leading to increased energy consumption, raising concerns about global power demand [9]. - Vertiv's role in engineering cooling systems positions it as a critical partner in managing the heat generated by powerful AI servers [11]. Financial Outlook - Vertiv anticipates organic revenue growth of approximately 12% for the current year, excluding acquisitions and divestitures [12]. - The company’s operating margin stands at 14% over the last 12 months, indicating the need for margin expansion to support its elevated stock valuation [8]. Long-term Potential - Vertiv is viewed as a potentially strong player in the AI-driven data center supply chain, with prospects for sustained growth beyond current market hype [13].

Group 1: Artificial Intelligence and Market Trends - Artificial intelligence (AI) is a major focus on Wall Street, with companies actively discussing its implications and opportunities [1] - The AI boom is expected to continue influencing market dynamics, driving stocks higher due to anticipated productivity gains and operational efficiencies [12] Group 2: Vertiv (VRT) Overview - Vertiv is projected to achieve nearly 40% year-over-year earnings growth in the current year, supported by strong quarterly results [2][3] - The company has a record backlog of $6.3 billion, indicating robust demand for its services [4] - Vertiv has raised its net sales guidance for the fiscal year to a range of $7.450 – $7.690 million, reflecting a $30 million increase [4] Group 3: Digital Realty Trust (DLR) Overview - Digital Realty Trust has seen its stock price increase by 44% over the past year, outperforming the S&P 500's 25% gain [6][7] - The company operates over 300 data centers in more than 25 countries, providing a strong market presence [7] - Digital Realty offers a solid annual dividend yield of 3.3%, significantly above the Zacks Finance sector average of 2.2%, with a 3% five-year annualized dividend growth rate [8]

Most investors may not have heard of Vertiv, but it contributes significantly to the AI process. Companies like Alphabet, Microsoft, and Nvidia soak up a lot of attention in the artificial intelligence (AI) race -- the first two because they invest in public-facing products, like ChatGPT (Microsoft) and the generative AI chatbot Gemini (Alphabet). And in the case of Nvidia, that's due to its indispensable chips and the stock's incredible performance. But don't forget about what is behind the curtain. A numb ...

Investment Rating - The report initiates coverage with a "Buy" rating for the company, setting a target price of $130.03 [23][33]. Core Insights - The company is positioned to benefit significantly from the AI trend and the dual carbon strategy, which is driving upgrades in data center power management and thermal management products. Approximately 75% of the company's revenue in 2023 is derived from data centers, with around 30% from thermal management products [33][101]. - The global data center infrastructure market is projected to grow at a CAGR of 9-12% from 2023 to 2028, with AI-related infrastructure expected to grow at a higher CAGR of 14-17% [114]. - The company has a strong order backlog, reaching $6.3 billion as of Q1 2024, up from $4.8 billion in Q1 2023, indicating robust demand for its products [133][146]. Summary by Sections Section 1: AI Era and Liquid Cooling - The rise of AI applications is increasing the power density in data centers, necessitating advanced cooling solutions. Liquid cooling technology is expected to see significant adoption as AI servers require higher cooling capabilities compared to traditional servers [26][80]. - The company collaborates with NVIDIA to develop liquid cooling systems, which are anticipated to gain market share as the new GB200 NVL systems are released [90][93]. Section 2: Comprehensive Power Products and Stable Service Growth - The company’s power management products are crucial as electrical systems account for 40-45% of data center infrastructure costs. The demand for power products is expected to rise due to increasing AI workloads [105][127]. - Service revenue has shown steady growth, reaching $1.592 billion in 2023, with a year-on-year increase of 7.52% [147]. Section 3: Financial Projections and Valuation - The company forecasts net profits of $633 million, $993 million, and $1.167 billion for 2024, 2025, and 2026, respectively, with corresponding P/E ratios of 64, 41, and 35 [33][114]. - The target price of $130.03 is based on a comparison with peer companies, which have an average P/E of 50 for 2025 [33][114].

Core Viewpoint - Vertiv Holdings Co is positioned as a strong competitor in the data center liquid cooling technology market, showing significant stock performance compared to Nvidia, despite Nvidia's rapid growth in AI technology [2][3]. Market Opportunity - The server cooling market is projected to grow at a compound annual growth rate of 60.7%, increasing from $4.1 billion in 2024 to $10.6 billion in 2026 [4]. - Liquid cooling's share among AI servers is expected to rise from 23% to 57% within the next two years [4]. - The demand for energy in data centers is anticipated to increase by 30%, reaching 260 terawatt-hours by 2026, driven by the growth of AI [5]. Company Performance - Vertiv's orders grew by 60% in the quarter ending March 2024, resulting in a record backlog of $6.3 billion [6]. - Q1 2024 revenue reached $1.64 billion, a 7.9% increase year-over-year, and adjusted earnings per share were $0.43, up 79.2% from Q1 2023 [18]. Competitive Advantages - Vertiv's liquid cooling systems allow for more efficient heat dissipation compared to traditional fan cooling, which is becoming less effective with more powerful chips [7][8]. - The company can charge three to four times more for liquid cooling systems than for air cooling systems, enhancing profit margins [10]. Strategic Partnerships - Vertiv has established a partnership with Nvidia, which helps market and sell its products, boosting current and potential revenue [12]. - The collaboration includes joint product design efforts, particularly for future technologies requiring liquid cooling [13][14]. Future Outlook - Vertiv raised its full-year guidance, expecting organic growth of 12% and adjusted operating margins to expand to 17.7% [16]. - The company has seen a doubling of the pipeline for AI projects in the last two months, indicating strong momentum in the AI-related orders [17].

Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool. ...

Core Insights - Vertiv has launched the Vertiv AI Hub platform to address the knowledge gap in managing the rapid growth of AI applications in data centers [1][3] - The AI Hub platform provides expert information, reference designs, and resources for developing AI-ready infrastructure, focusing on power and cooling solutions [2][3] - Vertiv is expanding its portfolio with AI-based solutions, including the recent launch of Vertiv 360AI and the acquisition of CoolTera Ltd. to enhance liquid cooling offerings [4] Industry Trends - The growth of Vertiv is primarily driven by the Cloud and Hyperscale sectors adopting AI, with increasing momentum in the Enterprise sector as well [5] - Vertiv's backlog for AI orders is steadily increasing, and the company anticipates normalization of its supply chains, which will further enhance business prospects [5] Financial Performance - Vertiv's shares have surged 523.4% over the past year, indicating strong market performance [6]

Core Viewpoint - Growth stocks are appealing due to their potential for above-average financial growth, but identifying stocks that can fulfill their growth potential is challenging due to associated risks and volatility [1] Group 1: Company Overview - Vertiv Holdings Co. (VRT) is currently recommended as a growth stock by the Zacks Growth Style Score system, which evaluates a company's real growth prospects beyond traditional metrics [2] - The company has a favorable Growth Score and a top Zacks Rank, indicating strong growth potential [2] Group 2: Earnings Growth - Vertiv's historical EPS growth rate is 72.6%, with projected EPS growth of 37% this year, significantly surpassing the industry average of 8.9% [5] Group 3: Cash Flow Growth - Vertiv's year-over-year cash flow growth is 88.4%, well above the industry average of -13.4%, highlighting its strong cash accumulation capabilities [6] - The company's annualized cash flow growth rate over the past 3-5 years is 31.2%, compared to the industry average of 8% [7] Group 4: Earnings Estimate Revisions - The current-year earnings estimates for Vertiv have been revised upward, with the Zacks Consensus Estimate increasing by 2.7% over the past month, indicating positive momentum [8] Group 5: Investment Positioning - Vertiv has achieved a Zacks Rank of 2 and a Growth Score of A, positioning it well for potential outperformance in the growth stock category [9][10]