Unveiling an Uncharted Territory
Artificial intelligence (AI) has emerged as a leading force propelling the S&P 500 and Nasdaq Composite indices to unprecedented heights. The rise of applications like ChatGPT has enraptured the global audience, fostering a relentless rhythm that shows no signs of waning.
Within the intricate web of burgeoning trends lies a treasure trove of investment prospects, particularly in the expansive realm of data centers. While companies like Nvidia, Advanced Micro Devices, and Intel dominate the chip market, a dark horse has entered the race – Vertiv Holdings (NYSE: VRT). This emerging contender focuses on crafting the structural backbone of data centers, paving its way in the AI revolution and enticing investors to consider a stake.
A Lucrative $438 Billion Landscape
Statista projects an astronomical $438 billion as the total addressable market for data centers by 2028. This forecast encompasses various facets of data centers, including IT architecture solutions like storage clusters, server racks, and network infrastructure.
Key to the data center landscape currently is the colossal energy consumption these facilities demand. Vertiv stands out with its specialization in heat management and innovative liquid cooling solutions for indoor server racks and external data center complexes.
Image source: Getty Images.
Assessing Vertiv’s Performance
An in-depth view of Vertiv’s operational prowess in 2023 unfurls a promising narrative.
| Category | 2023 | 2022 | % Change |
|---|---|---|---|
| Revenue | $6.9 billion | $5.7 billion | 21% |
| Free cash flow | $778 million | ($260 million) | N/A |
Data Source: Vertiv investor relations. Table by author.
Delving deeper into Vertiv’s revenue surge reveals a company firing on all cylinders.
In the year ending Dec. 31, Vertiv saw a 28% spike in sales for critical infrastructure and solutions, a 12% growth in integrated rack solutions, and a 7.5% uptick in other services. Particularly encouraging is the company’s accelerated progress in infrastructure service and rack solutions.
Noteworthy is Vertiv’s conclusion of the fourth quarter with a remarkable 23% surge in its backlog, reaching a record $5.5 billion.
Opportune Moment to Invest in Vertiv
Recently, Vertiv made headway by being chosen to join Nvidia’s partner network, aligning itself with other data center solutions providers collaborating with Nvidia to tackle the distinctive infrastructure challenges posed by accelerated computing.
While this partnership alone may not warrant an investment in Vertiv, it presents a promising avenue for future lead generation. With Nvidia’s data center business soaring 217% year over year in 2023, Vertiv’s affiliation with the chip giant could yield handsome returns over time as the AI narrative unfolds.
It’s crucial to note a crucial aspect of Vertiv – its valuation. The fervor around AI has catapulted capital markets to dizzying heights in the past year, benefiting tech behemoths predominantly but also spilling over to peripheral players.
Vertiv’s stock has ascended by a staggering 545% over the last year, rendering it a tad pricey. With a forward price-to-earnings (P/E) ratio of 35, well above the S&P 500’s 21, caution is warranted. Nonetheless, Vertiv remains an appealing prospect at present, particularly in the scorching data center domain.
Embarking on an Investment Journey
Amidst the flurry of options, Vertiv beckons as a hidden gem waiting to be unearthed. With robust top-line growth and a burgeoning pipeline of unrealized opportunities, Vertiv stands as a formidable contender in the fervent data center sector.
Before diving into Vertiv shares, reflect on this insight: While the Motley Fool Stock Advisor team may have overlooked Vertiv in their elite selection of 10 best stocks, the potential for exponential returns in those picks looms large. Stock Advisor’s comprehensive guidance, updated analyses, and bountiful stock suggestions have outstripped the S&P 500’s returns thrice over since 2002*.
*Stock Advisor returns as of April 15, 2024
Adam Spatacco has stakes in Nvidia. The Motley Fool has interests in and recommends Advanced Micro Devices and Nvidia, advises Intel, and suggests various options. They uphold a disclosure policy.