Global AI Demand And Favorable Policies Will Expand Data Centers

Key Takeaways

• Surging AI-driven data center demand and expanding integration needs are boosting Vertiv's growth prospects and supporting higher pricing power.
  
• Strategic R&D, industry partnerships, and regulatory trends position Vertiv for sustained innovation and long-term earnings growth despite near-term operational challenges.
  
• Ongoing supply chain disruptions, regional execution challenges, and customer vertical integration threaten Vertiv's margins, revenue growth, and competitive positioning amid rapid technological change.

Catalysts

Designs, manufactures, and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments in the Americas, the Asia Pacific, Europe, the Middle East, and Africa.

• Accelerating global demand for high-density, AI-driven data centers is driving robust growth in Vertiv's sales pipeline and backlog, as evidenced by recurring record order levels, backlog growth, and management's raised organic sales growth guidance-supporting potentially higher future revenue.
  
• Increasing complexity and scale of data center deployments, including the need for integrated power and advanced liquid cooling solutions, are expanding Vertiv's addressable market and enabling premium pricing, which should support future net margin expansion as temporary operational costs normalize.
  
• Ongoing investments in R&D and engineering, highlighted by collaborations with industry leaders (e.g., CoreWeave, Dell, Oklo), position Vertiv to deliver next-generation solutions ahead of technology refresh cycles-creating recurring upgrade opportunities and sustaining top-line and earnings growth.
  
• Regulatory and policy momentum in the U.S. and EMEA is becoming more favorable for AI infrastructure build-outs, improving the long-term demand outlook and revenue visibility, especially as the current "coiled spring" in EMEA is poised to unwind and drive regional reacceleration.
  
• Operational and supply chain challenges-including costs tied to tariff transitions and rapid scaling-are expected by management to be largely resolved by the end of 2025, supporting management's long-term operating margin targets (25% by 2029) and stronger future earnings growth as scale benefits are fully realized.

Vertiv Holdings Co Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vertiv Holdings Co's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.9% today to 16.5% in 3 years time.
• Analysts expect earnings to reach $2.3 billion (and earnings per share of $5.85) by about September 2028, up from $812.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.6x on those 2028 earnings, down from 59.0x today. This future PE is greater than the current PE for the US Electrical industry at 33.7x.
• Analysts expect the number of shares outstanding to grow by 1.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.78%, as per the Simply Wall St company report.

Vertiv Holdings Co Future Earnings Per Share Growth

Risks

• Intensifying global trade tensions and frequently changing tariffs are creating ongoing supply chain and manufacturing disruptions, leading to higher transition costs and operational inefficiencies that can compress net margins and pressure future earnings.
  
• The company's continued reliance on margin expansion from operational efficiencies is challenged by temporary but recurring execution issues, including cost overruns from supply chain reconfiguration and growth acceleration, which may result in lower-than-expected margin improvement and weigh on long-term earnings growth.
  
• Ongoing execution challenges in EMEA, compounded by flat sales forecasts and upfront investments in anticipation of future demand, create a risk that regional underperformance may persist, dragging on overall revenue growth and regional profitability.
  
• The risk of hyperscale and large cloud customers pursuing vertical integration or developing in-house cooling and power solutions could diminish Vertiv's ability to maintain win rates and may ultimately compress revenues and reduce market share over time.
  
• Rapid technological change in the data center sector means Vertiv must sustain high R&D spending and product innovation; failure to keep up with next-generation cooling/power technologies or an inability to differentiate amid increasing commoditization can erode pricing power, compress margins, and limit long-term earnings potential.

Valuation

• The analysts have a consensus price target of $157.424 for Vertiv Holdings Co based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $173.0, and the most bearish reporting a price target of just $119.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.9 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 35.6x, assuming you use a discount rate of 8.8%.
• Given the current share price of $125.58, the analyst price target of $157.42 is 20.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.