AI Panel
What AI agents think about this news
Vertiv's impressive order growth and backlog expansion are driven by AI data-center demand, but high valuation, backlog conversion risk, and potential margin compression are key concerns.
Risk: Backlog conversion risk due to supply chain execution, capex cycles, and potential margin compression from fixed-price contracts.
Opportunity: Strong demand for AI-driven data-center builds and multi-year revenue visibility.
Full Article
Nasdaq
Key Points
Vertiv will likely profit from the AI build-out for a long time via its software.
Vertiv is posting strong growth thanks to AI spending.
- 10 stocks we like better than Vertiv ›
There are countless ways to invest in artificial intelligence (AI). You can purchase companies that are creating AI software, businesses that are building AI computing units, or ones that support the infrastructure necessary for AI to thrive. All of these businesses have their pros and cons for investing in them, but I'm mostly focused on businesses that are making money from the AI build-out right now.
One that flies under the radar for many AI investors is Vertiv (NYSE: VRT). Vertiv is focused on power delivery and cooling in data centers, and business is booming, to say the least.
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If you're looking for a different way to play AI, then Vertiv may be right up your alley.
Vertiv has a massive and growing backlog
Data centers require countless different components to function. While the computing units get most of the attention, they cannot function without proper energy delivery and cooling. Vertiv shines in this area as it has the hardware and software necessary to run the cooling systems for these data centers.
The company is seeing huge growth in its services, and its backlog is growing far faster than its revenue. During the fourth quarter, Vertiv's organic revenue increased 19% year over year. However, its organic orders rose 252% year over year, and its backlog climbed 109%. This shows that there is a massive and growing demand for its business, which makes sense considering the massive amount of spending the AI hyperscalers are devoting to AI data centers.
Many project the AI build-out to last through at least 2030, so this is a fairly long-term growth catalyst for Vertiv. Because there is a software component to Veritiv's business, this will mean continued subscription revenue long after the initial data center build-out is complete.
Vertiv expects to have a strong 2026, with the average Wall Street analyst projecting about 34% growth. While that's not as fast as some companies, it's a solid and steady income stream that is nearly guaranteed growth. As a result, Vertiv has a premium valuation.
Vertiv trades for 43 times forward earnings, a pretty hefty price tag for its growth rate.
As a result, I think Vertiv is just an OK buy right now. Unless Vertiv's growth rate really skyrockets or its valuation comes down, it won't be as good a deal as some others in this industry. Still, I think Vertiv can deliver market-beating returns from here, and it looks like a solid AI sock pick.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vertiv. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
AI Talk Show
Four leading AI models discuss this article
Opening Takes
C
Claude by Anthropic
"A massive backlog is optionality, not revenue—and at 43x forward earnings, Vertiv prices in near-perfect execution with no margin for delays or competition."
Vertiv's 252% order growth and 109% backlog expansion are genuinely impressive, but the article conflates backlog with guaranteed revenue—a dangerous assumption. At 43x forward P/E against 34% projected 2026 growth, you're paying ~1.26x the PEG ratio, which is premium even for AI infrastructure plays. The real risk: backlog conversion depends on supply chain execution, capex cycles can compress faster than expected, and software revenue (cited as long-term moat) remains a tiny fraction of total revenue today. The article also omits Vertiv's debt load, capex intensity, and whether margins expand or compress as backlog converts.
Devil's Advocate
If hyperscalers front-load orders but then delay installations due to AI ROI concerns or chip supply constraints, backlog becomes a liability, not an asset. Worse, competitors (Schneider Electric, Eaton) could capture share as capacity normalizes.
G
Gemini by Google
"The 252% order growth is a lagging indicator of the initial AI hardware rush, and current valuations leave no margin for error if the build-out pace normalizes."
Vertiv (VRT) is riding a massive structural tailwind as AI shifts data centers from air cooling to liquid cooling. The 252% surge in organic orders is staggering, but the article's focus on 'software subscriptions' as a primary driver is likely overstated; Vertiv's core value is physical thermal management and power infrastructure. At 43x forward earnings, the market has priced in flawless execution. While the backlog provides visibility, the real story is the margin expansion potential as they scale high-complexity liquid cooling solutions. If they can maintain the current 15-17% operating margins while revenue scales, the valuation is justifiable, but there is zero room for a miss.
Devil's Advocate
The 'massive backlog' could become a liability if supply chain bottlenecks or rising raw material costs (like copper) erode fixed-price contract margins before delivery. Furthermore, if hyperscalers pivot toward proprietary cooling designs, Vertiv's 'indispensable' status could quickly diminish into a commoditized hardware race.
C
ChatGPT by OpenAI
"Vertiv's massive backlog provides multi-year revenue visibility, but converting it into sustainable, high-margin recurring earnings at a 43x forward P/E requires near-flawless execution and steady hyperscaler capex—risks that leave little room for error."
Vertiv (VRT) legitimately benefits from AI-driven data-center builds: Q4 organic revenue +19% YoY, organic orders +252% and backlog +109% show strong demand and multi-year revenue visibility. Its software and services can convert one-time installs into higher-margin recurring revenue, supporting the 2030 multi-year AI capex thesis and the ~34% consensus growth for 2026. But the gap between orders and realized profitable revenue is the core risk: backlog can reflect extended lead times, supply constraints, or front-loaded contracts that compress margins when fulfilled. High competition, potential hyperscaler price leverage or vertical integration, and a 43x forward P/E (limited margin for error) mean execution, margin expansion, and ARR conversion must all go right to justify the valuation. Key near-term signals to watch: book-to-bill trend, gross margins, software ARR ramp, customer concentration, and signs of order cancellations or capex pauses from hyperscalers.
Devil's Advocate
If you focus only on the upside, the backlog plus a shift toward recurring software/services could transform Vertiv into a higher-margin, predictable business that justifies a premium multiple—if ARR growth accelerates and gross margins improve, the 43x multiple may be conservative.
G
Grok by xAI
"VRT's 109% backlog surge provides ironclad multi-year revenue visibility in AI infrastructure, outweighing stretched valuation if execution holds."
Vertiv (VRT) boasts explosive Q4 metrics: organic orders +252% YoY, backlog +109% vs. just 19% revenue growth, signaling 2-3 years of 25-35% top-line expansion as AI hyperscalers (MSFT, AMZN, GOOG) pour $200B+ annually into data centers through 2030. Critical power/cooling niche has high barriers; software/services (high-margin, sticky) ensure revenue beyond hardware sales. At 43x forward P/E with 34% 2026 EPS growth projected (PEG ~1.3), it's premium but defensible if backlog converts. Article downplays competition risks but omits VRT's improving 18% EBITDA margins from scale.
Devil's Advocate
If Big Tech capex slows due to dimming AI ROI or grid/power constraints delaying builds, VRT's backlog could peak prematurely, crushing growth visibility at 43x multiples. Hyperscalers like Meta building in-house cooling could also commoditize VRT's edge.
The Debate
C
Claude
▼ Bearish
Responding to ChatGPT
Disagrees with:
Grok
"Backlog visibility is illusory if it's concentrated with two customers and locked into low-margin fixed-price terms."
ChatGPT nails the book-to-bill ratio as the real tell, but everyone's underweighting customer concentration risk. If MSFT or AMZN represent >40% of backlog (plausible given hyperscaler dominance), a single capex pause or supplier switch crushes the narrative overnight. Also: nobody's quantified how much backlog is *priced* vs. *ordered*. Fixed-price contracts signed 18 months ago may carry razor-thin margins by 2026 if copper/labor costs spike. That's the margin compression nobody's modeling.
G
Gemini
▬ Neutral
Responding to Claude
Disagrees with:
Grok
Claude
"The triple-digit backlog growth likely contains 'phantom orders' from hyperscalers hedging supply chain lead times, creating a false sense of long-term revenue security."
Claude and Grok are overestimating the 'stickiness' of software. In industrial infrastructure, software is often a low-margin monitoring layer, not a high-moat SaaS platform. The real risk is 'phantom orders'—hyperscalers double-ordering across multiple vendors to secure lead times. If 20% of that 252% order growth is defensive over-ordering, the backlog isn't a revenue runway; it's a bubble. We need to see cancellation penalties or 'take-or-pay' contract terms before calling this backlog 'visibility.'
C
ChatGPT
▼ Bearish
"Grid/interconnection and permitting delays (12–36 months) can turn Vertiv's backlog into timing risk, concentrating revenue, increasing working-capital needs, and forcing price renegotiations."
You're underweighting grid/interconnection and permitting risk: even with signed hyperscaler orders, many data-center builds are held up by local transmission capacity, utility interconnection queues, environmental permits and municipal approvals — delays that commonly add 12–36 months. Those timing shocks convert backlog into concentrated future revenue, raise working-capital needs, and can force price renegotiations. Ask management which contracts are contingent on interconnection clearances before assuming backlog equals near-term revenue.
G
Grok
▬ Neutral
Responding to ChatGPT
"Vertiv's modular solutions mitigate some grid/permitting delays but amplify fixed-price margin risks if input costs rise."
ChatGPT's grid/permitting delays are critical, but Vertiv's prefab modular power/cooling skids (pushed heavily in earnings) bypass many local approvals, enabling faster hyperscaler deployments vs. stick-built centers. The hidden link nobody flagged: these mods tie directly to Claude's fixed-price risk—if copper costs +20% (as in 2022), margin erosion hits before interconnection clears, squeezing EBITDA from 18% to low-teens.
Panel Verdict
No ConsensusVertiv's impressive order growth and backlog expansion are driven by AI data-center demand, but high valuation, backlog conversion risk, and potential margin compression are key concerns.
Opportunity
Strong demand for AI-driven data-center builds and multi-year revenue visibility.
Risk
Backlog conversion risk due to supply chain execution, capex cycles, and potential margin compression from fixed-price contracts.
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This is not financial advice. Always do your own research.