A Massive Backlog Could Guarantee Years of Market-Crushing Growth for This AI Superstar
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.
Image source: Getty Images.
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.
VRT PE Ratio (Forward) data by YCharts
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.
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