Here's Why Shares in Vertiv Crashed Today
Key Points
Vertiv shares dropped amid a broader AI/semiconductor sell-off sparked by Korean regulatory comments, triggering volatility in chip stocks.
Vertiv's earnings momentum remains strong despite external market events.
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Shares in Nvidia partner and data center infrastructure company Vertiv (NYSE: VRT) were down 8.3% as of 12 pm today, amid a broader sell-off in the AI/semiconductor sector following heavy selling in Korea, notably in electronics giant Samsung Electronics and memory chip company SK Hynix.
What happened in South Korea
While markets tend to be primed for sharp short-term corrections after such strong run-ups, there was some cause for particular concern among traders regarding the two Korean companies noted above. In a nutshell, the head of the country's financial regulator, Lee Chan-jin, made critical remarks about leveraged funds that seek to track the performance of chip stocks such as Samsung and SK Hynix.
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If the commentary prompts measures to curtail these products, it could trigger a rebalancing that forces liquidation in these stocks. That was enough to send both stocks tumbling today.
What it means for Vertiv investors
At which point investors are entitled to ask why this should negatively impact a U.S. data center infrastructure company like Vertiv? The answer lies in the usual volatility that follows when a stock runs up almost 175% in a year, as Vertiv has. That run has come as hyperscaler spending commitments continue to be revised upward, and fears of a slowdown in AI-related data center spending are being dispelled by continued earnings growth momentum.
Vertiv is a case in point, with the company starting the year with the midpoint of its full-year operating earnings forecast at $3.04 billion, only to raise it to $3.2 billion on its first-quarter earnings call in April.
Image source: Getty Images.
Given that there's plenty of evidence to suggest momentum continues to build, it won't be surprising to see the company raise estimates again on the second-quarter earnings call in the summer. And that's unlikely to be impacted by a curbing of leveraged products in South Korea.
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Lee Samaha 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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