Vertiv's Massive AI Backlog Fuels Growth, But Valuation Is High

Vertiv, a company specializing in power delivery and cooling for data centers, is experiencing a business boom tied directly to artificial intelligence. While its core products like cooling systems aren't as flashy as AI chips, they are essential for data centers to function.

The company reported staggering growth metrics for the fourth quarter. Organic revenue grew a healthy 19% year over year, but that was dwarfed by its order activity. Organic orders exploded by 252%, and its backlog—the value of orders not yet fulfilled—ballooned by 109%.

This massive and growing backlog indicates that demand for Vertiv's critical infrastructure solutions is far outpacing its current ability to deliver. The primary driver is the enormous spending by 'hyperscalers' like Amazon, Microsoft, and Google to build out AI data centers.

Analysts project this AI infrastructure build-out phase to continue through at least 2030, providing a long-term growth runway. Furthermore, Vertiv's business includes software for managing these systems, which creates a stream of recurring subscription revenue even after the initial hardware is installed.

For investors, this signals that Vertiv's growth is not a short-term spike but is backed by years of guaranteed work. A backlog that is larger and growing faster than revenue provides high visibility into future earnings, reducing business uncertainty.

The connection to AI is crucial. While many invest in AI software or semiconductors, Vertiv represents a 'picks and shovels' play on the trend. Every AI data center built needs power and cooling, making Vertiv a foundational beneficiary regardless of which AI models or applications ultimately win.

However, the market has already priced in much of this optimism. Vertiv currently trades at about 43 times its forward earnings, a premium valuation that reflects its strong growth prospects but also raises the bar for future performance.

This creates a tension for investors: the fundamental story is powerfully bullish, but the stock's price already assumes a lot of success. The analyst cited in the news concludes Vertiv is an 'OK buy'—solid for long-term growth but not a screaming bargain at current levels.

For the stock to outperform from here, Vertiv must either grow even faster than expected to justify its high price, or the valuation needs to moderate to create a better entry point for new investors.