Stock Pick of the Week (6/29)
Overview
While we have been working to increasingly diversify our portfolio over the past several months, one major sector has remained absent in technology. Rather than adding a mega-cap software or a semiconductor company, we believe Vertiv Holdings (NYSE: VRT) offers a more differentiated way to gain meaningful exposure to the continued expansion of AI infrastructure. Vertiv designs and manufactures the power, cooling, and electrical infrastructure that helps keep AI data centers operating smoothly and efficiently. As AI drives an unprecedented wave of data center consolidation, demand is not limited to chips; it extends to the infrastructure required to keep those chips running. Thus, these data centers rely on reliable power distribution and thermal management, a dependence that places Vertiv at the center of one of the fastest-growing areas of the tech industry.
Why Now?
As AI infrastructure spending continues to accelerate, companies like Microsoft, Amazon, Google, and Meta have committed hundreds of billions of dollars towards AI investments, with much of that spending flowing into new data centers. Hence, as computing power increases, so does energy consumption and heat generation, making cooling and electrical systems more important than ever.
The fundamental key here is that, unlike many companies in the industry that benefit from AI enthusiasm, Vertiv generates revenue from the physical infrastructure that every data center requires, regardless of which chip manufacturer actually wins. This dynamic provides investors with this exposure to surging AI growth without relying solely on semiconductor demand.
Financial Indicators
The company has consistently delivered strong revenue growth, expanding operating margins, and increasing free cash flow. Although shares have appreciated significantly over the past couple of years, the company’s earnings growth has kept pace, supported by continued demand from AI data centers.
Historical Revenue and Net Income (2022-202) – Source: TradingView
Why-to-Buy
As AI infrastructure continues to expand, the companies enabling that growth may prove just as important as those designing the chips. Vertiv occupies a critical position within this ecosystem while simultaneously filling an important technology gap in the current CFR portfolio. With durable demand drivers, improving profitability, and a business model tied to long-term data center investment, Vertiv is CFR's Pick of the Week!
