The stock market has turned a once little-known maker of data center equipment into one of the biggest names in AI infrastructure.
Vertiv is up 81% over the past year, compared to 13% for the S&P 500 Industrials sector as of Friday’s close. The stock has also outpaced industrial companies benefiting from the expansion of data centers.
That surge has made Vertiv a test case for the AI infrastructure sector, as demand for the power and cooling systems needed to run data centers has propelled the stock. The company’s performance also reflects the premium that the market has placed on companies positioned to benefit from the AI boom.
“Vertiv is just the poster child for the AI trade”, said Jake Levinson, director at Melius Research, who covers data center stocks. “The debate around Vertiv is really how high is high, in terms of where growth and earnings could go,” he added.
Vertiv’s rally accelerated after the company’s April report showed a 30% growth in revenue for the first quarter compared to the year before and raised its full-year outlook.
This May surge was evident in other AI-related companies, such as Nvidia and Micron Technology, as investors increasingly focus on companies that supply the chips, memory, and equipment needed to expand AI capacity.
Vertiv’s breadth of products is another reason the company has a competitive advantage, according to Levinson. Data center operators want to work with fewer suppliers, which benefits companies that provide more pieces of infrastructure. Vertiv’s exposure to both power and cooling has made it particularly valuable as AI increasingly requires energy and sophisticated cooling systems.
Some are more pessimistic about whether demand can support the valuations that investors have given companies like Vertiv. “All of these stocks have been bent to the moon on the assumption that they’re structural growers,” said Gordon Johnson, founder and CEO of GLJ Research.
The stock’s pullback since May has given these concerns more weight. Vertiv’s second-quarter revenue grew 24% from a year earlier but missed Wall Street expectations. The company announced a $1.45 billion acquisition of Utility Innovation Group on September 2, with up to another $1.15 billion in potential consideration, which also drew scrutiny over the price and limited financial details surrounding the deal. Since its May peak, Vertiv’s stock price has fallen over 30%.
The decline has drawn attention to whether the demand behind Vertiv can remain strong. The market has increasingly valued Vertiv as a long-term AI growth company, despite its roots as a cyclical industrial business, leading Johnson to argue that Vertiv has “gotten caught up in the AI euphoria”. He said customers will increase orders during a boom, eventually overbuild, and then withdraw when the cycle turns, which could make the stock more vulnerable.
Questions extend beyond Vertiv itself, as concerns about the pace of AI development intensify. In mid-September, Anthropic CEO Dario Amodei called for AI companies to slow future advancements for public safety, which OpenAI CEO Sam Altman and SpaceX founder Elon Musk supported.
Meanwhile, data centers face growing local opposition over issues such as electricity demand and noise pollution. A September Pew Research Center survey found that Americans feel more negatively about the future environmental and economic effects of data centers compared to the beginning of the year. The opposition also has had tangible effects – about 45 data center projects worth $68 billion were delayed or blocked in the second quarter of the year.
But some investors see those challenges as secondary to a larger technological shift. “The reality is that [data centers] are gonna be mega operations,” said Rob Kieckhefer, founder and managing partner of The Kieckhefer Group, which owns Vertiv stock.
He said that, regardless of current backlash, the AI revolution will spark a transformation that will “be financed by the richest companies in the United States.”
His comments also point to a broader argument behind Vertiv’s rally: delays or opposition to individual data center projects may not meaningfully change the larger investment underway in AI infrastructure.
Retail investors like Jesse Aladejare, 25, have also embraced that thesis. The company represents 17.8% of his investment portfolio, and he’s become even more optimistic about Vertiv since he began investing in February 2024, despite the stock’s recent decline.
“The stock has literally cooled off, but the business model has not,” Aladejare said. He sees the company’s revenue growth and recent acquisitions as a sign that the company will still deliver him returns.
“Overhyped and Vertiv are two words that does not deserve to be in the same sentence.”