By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel agrees that the AI infrastructure capex wave is real, but valuation risks and execution challenges, particularly for Argan (AGX), are significant concerns.
Risk: Argan's exposure to fixed-price contracts and potential margin compression from labor inflation and supply delays.
Opportunity: Vertiv's (VRT) liquid-cooling edge and potential vendor lock-in with hyperscalers.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The artificial intelligence (AI) spending boom is no longer benefiting just chipmakers or software players. CNBC estimates that Amazon, Microsoft, Alphabet, and Meta Platforms could have nearly $700 billion combined in capital expenditures for 2026, more than 60% above 2025 levels, to expand their AI infrastructure.
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According to Goldman Sachs and Morgan Stanley analysts, AI-related capital spending by U.S. hyperscalers could reach roughly $800 billion in 2026. Morgan Stanley expects it to rise to $1.12 trillion in 2027. A significant portion of that money will be allocated to cooling systems, electrical equipment, and new power plants required for AI facilities.
Vertiv (NYSE: VRT) and Argan (NYSE: AGX) offer two pick-and-shovel plays to invest in this boom. Vertiv supplies power and cooling equipment, while Argan builds power plants.
The company supplies power management, backup power, and air- and liquid-cooling equipment used in data centers.
Demand is already showing up in its results. In the first quarter of fiscal 2026 (ended March 31), revenue rose 30% year over year to $2.6 billion, while adjusted operating margin expanded 4.3 percentage points year over year to 20.8%. Management now expects 2026 revenue of $13.5 billion to $14 billion and adjusted diluted earnings per share of $6.30 to $6.40.
The opportunity is driven not only by the construction of more data centers. AI systems use more high-performance chips in each server rack compared to traditional servers, which increases electricity consumption and heat. This, in turn, raises demand for liquid cooling systems and equipment that can deliver more electricity to each rack.
Vertiv is working with Nvidia on 800-volt direct-current power systems for next-generation AI data centers. Management plans to launch its portfolio in the second half of 2026, aligning with the expected 2027 rollout of Nvidia's Rubin Ultra platform.
Vertiv entered 2026 with a $15 billion backlog, up 109% year over year and exceeding its projected 2026 revenue. Most of these orders are expected to ship within 12 to 18 months, providing visibility into 2027. However, customers can cancel or reschedule orders.
Valuation remains a challenge. The stock trades for nearly 34.8 times analysts' expected 2027 earnings. The premium valuation assumes AI infrastructure demand remains strong, margins stay elevated, and the company expands manufacturing capacity without major supply chain or execution problems.
Investors buying Vertiv today are therefore paying not only for strong growth, but also for exceptional execution during the next several years.
Argan could benefit from the AI infrastructure boom in multiple ways. Its biggest opportunity comes through two subsidiaries, Gemma Power Systems and Atlantic Projects Company, which build, commission, and maintain natural-gas and renewable-power facilities.
Goldman Sachs expects U.S. data-center power demand to more than double from 31 gigawatts in 2025 to 66 gigawatts in 2027. Argan can serve the rising demand for power generation by building natural gas and renewable energy facilities. Natural gas projects accounted for 79% of the company's backlog at the end of the first quarter of fiscal 2027 (ended April 30). This gives it substantial capacity for power generation that can be tapped when electricity demand rises.
Management's second opportunity comes through its industrial segment, which has a contract to build about 2,000 pressure vessels for thermal energy storage and chilled water-cooling systems at a customer's data centers. The company is also building another North Carolina factory to support that contract and pursue more work.
Lastly, another subsidiary, SMC Infrastructure Solutions, gives Argan a smaller potential opportunity through power distribution, fiber optics, communications, and data network projects. However, management has not disclosed a major AI-specific contract for this business.
In the first quarter, revenue increased 50% to $291 million, while net income more than doubled to $46.1 million. The company exited the first quarter with an order backlog of about $2.8 billion. Total cash, cash equivalents, and investments were about $973.6 million, while the company carried no debt.
The stock already prices in strong execution. It's trading at 39 times forward earnings. However, the order backlog declined from $2.9 billion at the end of January 2026 to $2.8 billion at the end of April.
The company also earns most of its revenue from fixed-price contracts, leaving it exposed to equipment delivery delays, rising labor costs, and other cost overruns. Slower project awards could also make it harder to replace backlog as existing projects are completed.
Argan has several ways to benefit from AI infrastructure spending, but its largest opportunity remains the construction of new power generation capacity. The stock can continue to rise if project awards remain strong and Argan maintains its recent execution pace.
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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, and 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.
Four leading AI models discuss this article
"AI infrastructure tailwinds are real but already priced into stretched multiples, leaving limited margin of safety if order momentum or execution falters."
The article correctly identifies that hyperscaler capex (AMZN, MSFT, GOOGL, META) is exploding toward $700B–$1.1T by 2027, driving power, cooling, and infrastructure demand. Vertiv (VRT) enters 2026 with a $15B backlog (+109% YoY), 30% revenue growth, and Nvidia 800V collaboration; Argan (AGX) shows 50% revenue growth and $2.8B backlog tied to gas-fired and thermal-storage projects. Goldman and Morgan Stanley forecasts for data-center power doubling to 66 GW by 2027 are directionally credible. However, valuations are already stretched (VRT ~35x 2027 EPS, AGX ~39x forward) and the piece underplays execution risks in a supply-constrained environment.
Backlogs can be canceled or deferred; fixed-price contracts expose AGX to cost overruns and labor inflation, while VRT’s premium multiple assumes flawless capacity expansion and sustained hyperscaler spend that could be reined in by higher interest rates or AI ROI disappointment.
"Current valuations for VRT and AGX rely on flawless execution and ignore the systemic risk of grid-level interconnection delays that could push revenue recognition well beyond the 2026-2027 window."
While the 'pick-and-shovel' narrative for Vertiv (VRT) and Argan (AGX) is logically sound, the market is pricing these stocks for perfection in an environment where execution risk is peaking. VRT’s 34.8x forward P/E is aggressive for a hardware company that is essentially a commodity-adjacent manufacturer, even with liquid cooling tailwinds. Argan’s 39x forward earnings multiple is even more precarious given the volatility of fixed-price construction contracts and a shrinking backlog. Investors are ignoring the 'utility bottleneck': even if these companies build the infrastructure, grid interconnection queues and regulatory permit delays could defer revenue recognition, compressing margins and forcing valuation multiples to contract sharply.
The massive $15 billion backlog at Vertiv provides enough revenue visibility to sustain its premium multiple, and the sheer scale of hyperscaler capex makes these infrastructure providers indispensable regardless of short-term project timing.
"The AI capex boom is real, but Vertiv and Argan are priced for perfection—any margin compression, customer concentration loss, or project delay cascades into significant downside from current valuations."
The article conflates two very different risk profiles under one 'AI infrastructure' umbrella. Vertiv at 34.8x 2027 P/E is pricing in flawless execution, margin sustainability, and zero customer cancellations—a high bar. Argan at 39x forward P/E faces fixed-price contract exposure: labor inflation, supply delays, and cost overruns directly compress margins. The $700B–$1.12T capex thesis is real, but it's already priced in. What's missing: customer concentration risk (how many of these orders are Meta vs. the Big 4?), the timing mismatch between backlog visibility (12–18 months) and 2027 earnings assumptions, and whether hyperscalers will self-build or vertically integrate cooling/power solutions to reduce vendor dependency.
Both stocks have already run hard on this narrative; the backlog is real but backlog-to-revenue conversion risk is understated, and fixed-price contracts in an inflationary environment are a structural headwind Argan cannot easily escape.
"AI infrastructure spend can drive multi-year upside for Vertiv and Argan, but the durability of the cycle and execution resilience will determine whether this upside is realized."
The piece correctly flags a secular AI capex wave lifting data-center spend, with backlogs and revenue momentum for Vertiv (VRT) and Argan (AGX) as plausible beneficiaries. But the rosy narrative glosses over three risks: (1) the cycle is likely choppy and highly concentrated among hyperscalers; a macro wobble or Nvidia Rubin Ultra delays could push capex into 2028; (2) Vertiv’s valuation (~34-35x 2027 earnings) implies expensive risk if execution falters or supply chains tighten; (3) Argan’s fixed-price contracts expose it to cost overruns and delivery delays, and a falling backlog could prelude weaker orders. Without a persistent, broad-based AI capex wave, the upside may be significantly capped.
Counterpoint: if AI capex slows, backlogs unwind quickly, and valuation multiples compress, both names could underperform even with decent execution.
"AGX's energy-source concentration adds commodity and regulatory risk that the panel has under-weighted versus pure execution concerns."
Nobody has flagged that AGX's gas-fired + thermal storage mix creates direct correlation to volatile natural-gas prices and potential policy reversal on peaker plants. If hyperscalers pivot harder to nuclear or renewables post-2026, AGX's backlog could see material scope changes that fixed-price contracts cannot absorb. VRT's liquid-cooling edge looks more durable here.
"Vertiv's integration with Nvidia creates a defensive moat that differentiates it from general infrastructure providers like Argan."
Claude is right to flag customer concentration, but misses the 'vendor lock-in' dynamic. Hyperscalers aren't just buying gear; they are co-developing proprietary liquid cooling designs with Vertiv. This creates high switching costs that protect margins better than pure commodity hardware firms. While Argan faces genuine margin compression from fixed-price contracts, Vertiv’s moat is its engineering integration with Nvidia. The real risk isn't just backlog conversion; it's the potential for hyperscalers to demand price concessions as they scale.
"Vendor lock-in dissolves when hyperscalers' capex discipline exceeds loyalty; both VRT and AGX face margin compression from customer power, not just execution."
Gemini's vendor lock-in thesis is compelling but incomplete. Hyperscalers have proven willing to vertically integrate when switching costs rise—see AWS's custom silicon strategy. Vertiv's 'engineering moat' evaporates if MSFT or GOOGL decide proprietary liquid cooling justifies capex. Grok's natural-gas policy risk for AGX is real, but underestimates how quickly hyperscalers can pivot contract terms when renewables/nuclear become cheaper. Both names assume customer loyalty that capex discipline historically erodes.
"AGX margin risk is driven more by fixed-price contracts and execution delays than by natural-gas price volatility alone."
AGX's gas-fired plus thermal storage exposure is real, but Grok makes gas-price swings the main risk. In practice, fixed-price contracts and labor-inflation pressures are likelier to compress margins, with execution delays and permitting bottlenecks looming as recurring headwinds. Gas spikes could hurt, but the bigger, more persistent risk is project delivery under inflationary costs and schedule slippage, which can erode backlog value and profit even if the underlying demand stays intact.
The panel agrees that the AI infrastructure capex wave is real, but valuation risks and execution challenges, particularly for Argan (AGX), are significant concerns.
Vertiv's (VRT) liquid-cooling edge and potential vendor lock-in with hyperscalers.
Argan's exposure to fixed-price contracts and potential margin compression from labor inflation and supply delays.