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Buying Opportunity? AI Infrastructure Stock Crushes Earnings

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Vertiv (VRT - Free Report) , a global provider of critical digital infrastructure including data center and related systems management reported strong quarterly earnings results this morning, sending the stock to new all-time highs.

Vertiv stock has gone on an incredible run over the past year, as investors realized the key role Vertiv would play in the artificial intelligence boom.

Even with the incredible stock price appreciation Vertiv has experienced over the last year, it still boasts a reasonable valuation, and a long runway of growth ahead of it. Furthermore, with a top Zacks Rank, it also enjoys increased odds of rallying further in the near future.

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Critical AI and Digital Infrastructure

As we’ll cover in the earnings results below, the growth in generative AI has been a significant boon to Vertiv’s business and shows no evidence of slowing.

The company currently sits in an extremely strategic position within the AI boom, a very encouraging development for shareholders. Here is how Vertiv aids the technological revolution:

  • High-Density Power and Cooling Solutions: The ever-growing processing power of AI requires robust power and cooling infrastructure. Vertiv's data center solutions are designed to handle the intense heat generated by AI workloads, ensuring optimal performance and preventing overheating.
  • Technical Partnerships: Vertiv actively collaborates with leading AI chipmakers like Nvidia. These partnerships ensure their solutions are specifically tailored to meet the unique power and cooling demands of cutting-edge AI hardware.
  • End-to-End Expertise: Vertiv doesn't just provide individual components. They offer comprehensive solutions that manage power delivery and heat rejection from the power grid all the way to the individual chip. This holistic approach streamlines AI infrastructure deployment and optimizes performance.
  • Global Reach and Scalability: The AI revolution is happening worldwide. Vertiv's global presence allows them to support the growing demand for data center infrastructure across different regions. Their scalable solutions can adapt to the ever-increasing power and cooling needs of AI applications.

In terms of AI-adjacent stocks to own, Vertiv is easily one of the best verticals to be positioned in.

Earnings Results

Vertiv reported strong financial results for the first quarter of 2024 beating estimates for both sales and earnings.

Organic orders increased by 60% compared to the same period last year and net sales reached $1,639 million, marking an 8% increase from the first quarter of 2023. Operating profit for the quarter was $203 million, while adjusted operating profit stood at $249 million, reflecting a significant year-over-year growth of 42%.

The company also began returning cash to shareholders, repurchasing approximately 9.1 million shares at an average price of $66 per share, which was very well timed as the stock is considerably higher today.

Additionally, Vertiv raised its full-year 2024 guidance, expecting net sales growth of 12% at the midpoint, along with increased operating profit and adjusted operating profit. The company attributes its strong performance to robust demand, particularly in AI-driven deployments and liquid cooling technologies, positioning Vertiv for continued growth and operational improvement in the evolving digital infrastructure landscape.

Is Vertiv a Buy?

Based on its importance to the AI ecosystem, its top Zacks Rank and reasonable valuation, I think Vertiv makes for a compelling stock to consider investing in.

Reflecting upward trending earnings revisions, it currently has a Zacks Rank #2 (Buy) rating. Next quarter earnings have been revised higher by 3.5% and next year’s earnings have been increased by 5.5% over the last two months.

Today, Vertiv has a one year forward earnings multiple of 33.5x, which is well above its two-year median of 21x and below the industry average of 36.9x. While this isn’t a discount valuation it certainly isn’t too expensive considering how important the products and services are to the AI boom.

Additionally, it is forecasting EPS to grow 26.7% annually over the next 3-5 years.

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Other AI Stocks to Consider

Over the last couple of weeks some of the leading technology and AI-related stocks have sold off considerably with many down as much as 10%-20%. Two of the leading names in AI jump out to me.

Nvidia (NVDA - Free Report)  and Advanced Micro Devices (AMD - Free Report)  are both on sale at current levels. Of course, Nvidia is still the stock to own in the space, and even with its incredible price appreciation still has a very reasonable valuation sitting at 34x forward earnings.

With the immense demand sparked for products, Nvidia continues to see sales and earnings estimates revised higher, giving them a Zacks Rank #1 (Strong Buy) rating.

As one of the premium semiconductor producers, AMD also sits in an advantageous spot. It too boasts a Zacks Rank #2 (Buy) rating, and projects EPS to grow 25% annually over the next 3-5 years. AMD has also seen some hefty selling with the stock down more the -30% from its recent highs.

Bottom Line

For investors looking to add exposure to the AI and technology sector, Vertiv, Advanced Micro Devices and Nvidia all appear to be worth investment considerations. Thanks to the recent market selloff both AMD and Nvidia are off their highs, although Vertiv pushed to new all-time highs following the earnings report.

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