Why Shares in Vertiv Crashed Today

Source The Motley Fool

Shares in data center equipment maker Vertiv Holdings (NYSE: VRT) tumbled more than 11% by 3 p.m. today. The decline comes after a general sell-off in the AI/data center sector following the news that the U.S. is banning 80 companies, including many in China, from buying U.S. technology. They include customers of Vertiv's partner Nvidia. As such, the whole sector sold off today.

Vertiv-specific news

In addition, some analysts have a more negative outlook on Vertiv. An analyst at Barclays reduced the company's price target on Vertiv to $100 from $111 and maintained an "equal weight" recommendation, citing potential pressure on revenue and margin.

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In addition, a TD Cowen analyst believes that since data center demand has increased, hyperscalers could be redesigning data centers in response, leading to a slowdown in near-term orders for Vertiv's power and thermal management equipment.

What it means to investors

Vertiv's order growth was flat year over year in the fourth quarter, and today's news doesn't help sentiment much. That said, end-market demand remains excellent. According to Vertiv's management, the order slowdown in Q4 was due to regulatory issues in Europe.

A surprised investor.

Image source: Getty Images.

In fact, end-market demand remains robust, even if hyperscalers are indeed pausing orders to redesign data centers to accommodate more than previously anticipated demand. As long as end demand remains in great shape, Vertiv is highly likely to receive orders in the future, and the dip in the share price is potentially an excellent buying opportunity.

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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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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