The rise of artificial intelligence (AI) is creating massive demand for new data centers, and with it demand for the companies serving the data centers.
Vertiv (VRT 0.91%), one such company, easily beat quarterly expectations and its stock is up 10% as of noon ET as a result.
Strong results, stronger orders
Vertiv makes power management and cooling systems for data centers and communications hubs. Heat is a massive issue inside data centers and inadequate cooling can limit how fast the centers can grow.
The company earned $0.43 per share in the quarter on revenue of $1.64 billion, surpassing Wall Street's consensus estimate for $0.36 per share in earnings on sales of $1.62 billion. Revenue grew by 8% year over year and operating profit was up 42%.
There is more growth ahead. Orders were up 60% compared to the first three months of 2023, giving Vertiv a record high $6.3 billion backlog at quarter's end.
"We are seeing order patterns with longer lead times based on customer build schedules, largely in 2025 and beyond, suggesting AI is starting to scale," CEO Giordano Albertazzi said in a statement. "Though still in its early stages, AI is quickly becoming a pervasive theme across our end markets."
Vertiv expects to earn between $2.29 and $2.35 per share for the year, suggesting some potential upside to the consensus $2.30 per share estimate.
Is Vertiv stock a buy following a strong earnings report?
Vertiv stock is up nearly 600% over the past year. The forecast is bullish but the company will have to deliver on it, as investors are pricing a lot of future growth into the shares right now.
As Vertiv matures, it is fine-tuning its cash-generation engine, increasing net cash generated from operating activities by $96 million year over year to $138 million. It is using some of that cash on buybacks, repurchasing $600 million worth of shares in the quarter despite the elevated prices.
Vertiv is a great backdoor way to invest in the AI boom, and if the sector continues to grow, the stock can appreciate from here. But investors should steel themselves for some sort of deceleration up ahead that could impact enthusiasm. Even if Vertiv is a big winner from here, there will likely be volatility along the way.
