Is This AI Data Center Stock a Buy While the Market Panics About Oversupply?

The market is entering a new era and a new debate around artificial intelligence (AI) infrastructure. After two years of relentless capacity additions and money being thrown at AI, some analysts are warning about a potential oversupply of data center power and cooling capacity, especially in the back half of 2026 and into 2027.

That worry has weighed on the share prices of the pick-and-shovel names that benefited most from the ongoing data center build-out. The stock for Vertiv (NYSE: VRT), one of the clearest leaders in liquid cooling and critical power for AI data centers, is now trading well below its highs even as the underlying order book remains strong.

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Vertiv sells the equipment that keeps a data center running -- uninterruptible power systems, switchgear, busways, racks, and, increasingly, liquid-cooling distribution units and coolant distribution manifolds that AI clusters need because GPUs generate more heat than air cooling can remove at scale. The company's product set covers both the brownfield retrofit market (existing data centers being upgraded for AI workloads) and the greenfield AI build-outs.

The most recent reporting cycle pointed to a backlog of roughly $15 billion, supported by accelerating order trends and liquid cooling becoming a meaningful share of new AI deployments. The next earnings update is due in late July 2026.

Why the oversupply debate exists

The bear case for Vertiv rests on two ideas. The first is that hyperscaler capital spending growth, which has been running well above 30% annually, must eventually slow. Combined 2026 capital expenditures (capex) from Alphabet, Amazon, Meta Platforms, and Microsoft are on track to exceed $700 billion versus roughly $410 billion last year. The argument is that this is unsustainable.

The second concern is more tactical. Data center power capacity is being announced faster than utility interconnections can deliver, and at some point, either the power constraint cools demand, or some announced projects get pushed out. Both outcomes are bad for the equipment companies in the near term.

What the panic is missing

The flaw in the simple oversupply case is that AI cluster densities keep rising, which means more cooling per square foot, not less. Liquid cooling is no longer a future product; it is being designed into 2026 and 2027 deployments as the default for high-density GPU racks. Vertiv has been one of the early winners of that shift, and its customer relationships with the largest hyperscalers and colocation providers are deep enough that share gains tend to stick across cycles.

That being said, a cyclical slowdown is possible with Vertiv. Vertiv has historically been a cyclical industrial business, and if hyperscaler capex grows even at "only" 15% to 20% rather than the recent pace, the multiple will compress further. Supply chain on certain components remains tight, and tariffs and trade policy moves around China and Mexico can affect input costs.

All of this sounds dense and jargon-heavy. In other simpler terms, AI stock valuations and their actual data centers are becoming so dense that demand for advanced cooling keeps rising. Vertiv is right in the middle of these needs and relationships, even though slower cloud spending growth, supply chain constraints, and tariff exposure could still pressure the stock's valuation in a more cyclical environment.

Why this is a buy-on-fear setup

Investors get the most attractive entry points on infrastructure companies when the market briefly worries that demand has peaked. Vertiv has a long-duration order book, a leadership position in the part of the data center where AI is most clearly driving incremental spend, and a valuation that has come down from its highs. None of that guarantees a smooth path higher, but it changes the asymmetry compared to where the stock was a year ago.

Vertiv stock has traded up nearly 100% over the last six months, so investors shouldn't put all their money into the ticker right now. The oversupply debate is legitimate and worth taking seriously, but it often gets the timing wrong. Vertiv is a great stock to slowly start adding to your portfolio. For investors willing to look past one or two noisy quarters, the current setup is one of the more interesting in AI infrastructure, with the caveat that this is a cyclical name and position sizing should reflect that.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Vertiv. The Motley Fool has a disclosure policy.