How Vertiv, share price return 2.5 times of Nvidia, make money?


Company profile

Company introduction

Vertiv (ticker: VRT) is an Ohio-based company that provides data center infrastructure, cooling data center equipment, and AC and DC power management solutions.

Company’s history

Vertiv Technologies, formerly known as Emerson Network Power, is part of Emerson Electric Company. In December 2016, Platinum Equity acquired Emerson Network Power from Emerson Electric. Emerson Energy later changed its name to Vertiv Technologies.

Initial public offering

On February 10, 2020, the company was listed on the New York Stock Exchange through a merger with special purpose acquisition companies (SPACs) backed by Goldman Sachs Group. SPACs stocks had already soared during the SPAC craze before the epidemic.

Current operating status

Business is hot

As mentioned before, most of Vertiv’s revenue comes from the power management and IT systems used in data centers; that is, it is a data center infrastructure provider. Its core business is the cooling of data center equipment, as well as communication and DC power management solutions, etc.

Due to the explosive growth of semi-finished artificial intelligence in the past year, large customers’ investments in data centers, servers, and infrastructure equipment have supported the market demand of companies in related industries. Verti has benefited a lot from the strong demand for artificial intelligence servers.

Tailwind by AI

As the computing power of GPU chips increases, the heat energy generated also increases, and the traditional air cooling used in the electronics industry for many years can no longer cope with it. As far as Nvidia’s latest GB200 artificial intelligence product is concerned, it is announced that it will introduce a water cooling solution.

The new architecture server’s whole cabinet water cooling output value is higher. In addition to Nvidia, the future artificial intelligence servers of other chip manufacturers will increase rapidly due to the increase in chip computing power. The power supplies used will develop toward high wattage, and the accompanying heat energy will also increase; This is the main reason why cooling and power supply manufacturers have become popular.

Taiwannese benefited also

Because Taiwan is a ODM kingdom in the electronics industry, it has the same story. In the past, listed heat dissipation companies that belonged to the marginalized groups in the electronics industry had no attention at all. However, in the past year or so, the stock prices of listed cooling companies have almost reached record highs since their listing.

Why Vertiv?

The point are:

  • Nvidia’s latest GB200 artificial intelligence product uses traditional heat dissipation to meet the needs. It needs to seek more advanced cooling technology to cool down the machine, otherwise the machine will stop functional.
  • Verti is Nvidia’s “exclusive” supplier of liquid cooling solutions.

Operating performance

Q1 2024 result

Due to the substantial growth in orders, the backlog of orders reaching a new high, and performance exceeding market expectations, the company raised its full-year performance guidance. Overall, Vertiv Technology delivered a stellar quarterly report. Below is the highlight from first quarter of 2024:

  • The company’s net sales were US$1.639 billion, an annual increase of 8%.
  • Operating profit was US$203 million, and adjusted operating profit was US$249 million, an annual increase of 42%.
  • During the same period, the company’s orders increased by 60% year-on-year, and the backlog of orders at the end of the period reached a record high of US$6.3 billion.

Guidance for 2024

Under this circumstance, the company also raised its full-year performance guidance for 2024, anticipating:

  • Net sales grew by a median of 12%, with operating profit ranging from US$1.15 billion to US$1.2 billion.
  • Adjusted operating profit ranges from US$1.325 billion to US$1.375 billion, with a median annual increase of 28% compared with the full year of 2023.

Operational Outlook

Vertiv’s chief executive said first-quarter order growth exceeded the company’s expectations, reflecting the strong role of artificial intelligence in driving demand. “Although it is still early days, artificial intelligence is quickly becoming a common theme in end markets.

The continued advancement of GPUs and other artificial intelligence-related technologies also requires changes and upgrades in key digital infrastructure.”

Capital market performance

As of May 20, 2024, Vertiv’s stock price return in the past year exceeded 501%, surpassing the 204% of Nvidia, the king of artificial intelligence chips, and can be called the low-key growth champion of the US stock market.

Amid the plight of SPAC investors, Verti’s performance was even more outstanding, with a return rate that was eight times that of the S&P 500 Index during the same period.

credit: Vertiv

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