Is This Ohio-Based Company Poised for Market Gains in AI/Data Center Infrastructure?

There's no disputing that data center infrastructure company Vertiv (NYSE: VRT) is a great company, and it's definitely set for growth as artificial intelligence (AI)-driven investment in data centers shows no sign of slowing down. As such, investors in the Ohio-based company can have reasonable confidence that Vertiv will grow handsomely in the coming years. Does that mean the stock is a good value?

Vertiv is an exciting growth stock

The company is a leader in data center infrastructure, offering power, thermal management (cooling), and other IT equipment and services. It's an Nvidia partner and is developing a suite of power-system solutions for the new 800V high-voltage direct current (HVDC) data centers, set for launch in 2027. As such, it's a high-profile play on the ongoing boom in data center spending to support demand coming from AI applications.

That said, it's been a peculiar year for the company. Its stock is up more than 67% so far this year, and the company has raised its full-year sales forecast on every earnings call in 2025. Unfortunately, the hike in its sales guidance in 2025 didn't produce the kind of increase in operating profit and cash-flow guidance necessary to justify its valuation, which, based on the midpoint of management's guidance, would put it at 47 times estimated 2025 earnings.

This point is illustrated in the table below, where a 10.9% increase in guidance led to a 6.5% increase in adjusted operating profit expectations and a relatively disappointing 15.4% increase in free-cash-flow (FCF) expectations.

Data source: Vertiv Holdings presentations. All figures are the midpoint of guidance.

Under normal circumstances, Vertiv's management expects its incremental margin to be in the 30% to 35% range. In plain English, this means that for every dollar of increased revenue, Vertiv expects to add $0.30 to $0.35 to its adjusted operating profit.

Playing this out in 2025 means that the increase in sales expectations of $1 billion through the year should translate into an increase of $300 million to $350 million in adjusted operating profit expectations -- but it didn't. The actual figure was $125 million.

Why Vertiv fell behind expectations

The reason Vertiv fell behind this target is due to cost headwinds stemming from tariffs and the actions management took to secure its supply chain in the face of these tariffs. The good news is management continues to believe in the 30%-35% incremental range, with CFO David Fallon arguing on the recent earnings call:

Maybe the one dynamic for next year is we certainly wouldn't anticipate a headwind from tariffs. They continue to remain volatile and uncertain, but that was probably the most significant headwind that got us below that 30%, 35% range in 2025.

Image source: Getty Images.

A quick look at the Wall Street consensus confirms that analysts also share this view, with the consensus predicting a sales increase of approximately $2 billion in 2026, followed by a $638 million increase in operating profit,. This represents an incremental rise of around 32% in 2026.

The bad news is that no one, not even President Trump, really knows what the tariff environment will be like in 2026.

Why this matters so much to investors

Fallon also believes that merely achieving low 30% incrementals will help Vertiv reach its target of a 25% operating margin by 2029. Presumably, this is based on the assumption of an organic compound annual growth rate (CAGR) in revenue of 12%-14% for 2024-2029, as stated at the last investor conference.

That CAGR estimate appears conservative, given management's expectation for organic revenue growth of 27% in 2025. It provides plenty of evidence to suggest that AI/data center spending growth is accelerating, not decelerating.

Is Vertiv stock a buy?

It's hard to argue that Vertiv is significantly undervalued on its current earnings, but remember that they are worse than they might have been, thanks to tariffs. If you're bullish on AI/data center spending and not overly concerned with tariffs, then it's not hard to envision a scenario where Vertiv generates $4.6 billion (more than double the expected profit in 2025) in adjusted operating profit by 2029, on $18.2 billion in revenue. Such growth would justify Vertiv's current valuation.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.