$VRT: The Backbone of Artificial Intelligence

Vertiv Holdings

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Brief Macro Outlook:

One interesting aspect of the encroachment of AI is the critical need for infrastructure. Be it from an energy perspective (something something about AI using up as much energy as Germany by 2026) or from a critical real estate perspective, AI is going to be a commoditized space.

You're going to need natural gas, coal, oil, the whole wazoo to get the thing going (and it's already using quite a bit of that) but you're also going to need data centers.

I don't know if you've heard or not, but data centers are the popping up like moles on a whack-a-mole. According to P&S the industry was valued at well over $300B last year and it's estimated to have at least 10% compound growth year over year until 2030.

Virginia, California, Texas, all these places keep adding more and more data centers year after year. I actually have a buddy that works on these, but anyway, I digress. The point is, during a gold rush, you'd be well served to be selling the shovels...

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Selling Shovels: $VRT

So what do I mean by selling shovels during a gold rush?

Well, you can go google it if you really can't figure it out but $VRT is the perfect epitome of what I mean by this. Let's look into it:

$VRT or Vertiv Holdings is a company dedicated to selling shovels of the AI world. No, I don't mean chips like $NVDA or copper or whatever else it is, I mean the data centers.

With customers across 130 countries servicing data structure infra needs along with other bread and butter businesses with telecoms, commercial users, hospitals, one thing is undeniable - their data structure business is the backbone of how AI is going to be powered.

Artificial Intelligence may seem as if it flows in the ether but it's grounded by very real things with real world limitations forced by their processing and computing needs.

$VRT is perfectly poised to capture this and is already seeing AI scaling up in it's order book and in what I care about - the money.

FY24 Q1 has seen organic orders drive up by 60% compared to FY23 Q1 with a record high $6.3 billion backlog at the end of FY24 Q1. Net sales have grown 8% but more importantly, their profit has grown by 42% from FY2023 Q1 to a cool $203 million dollars.

As the cherry on the top of this beautiful ice cream floating in the data center ether world is the $600M being deployed for share repurchases (weighted average at $66/share) and a dividend of 2.5c per share being announced earlier last week.

Say what you will about what occasionally seems like the AI Bubble 2.0, the order book does not lie. And if capital continues to flow at current rates, it's hard to deny that the EPS is only going to go up.

Let's take their guidance for example - if net sales grow at 12% and profit is expected to grow by 28% we should see net income flip from their current quarter at $202.6M to around +$259M USD by EOY on a quarter based clip.

But let's say we're not as aggressive and we expect profit to increase in line with net sales by 12% we're looking at $227M give or take.

Anyway, let's assume they maintain their 379M+ shares outstanding, we should be looking at an EPS of 59C give or take (so many give or takes but give me a break or take me out (of this life))

Now average that across to a year at $227M gained on average per quarter you're looking at $908M - around 23% less than what VRT is forecasting themselves (not including the ammortization of intangibles) - but again, this is just me being cautious.

Let's assume their expenses are the same as forecasted.

This would give me an EPS of 73c (again not including amortization of intangibles or change in warrant liability).

Now including their amortization and warrant delta in we're looking at around $633M in profit from more hand wavey back of napkin math.

EPS then is $1.67 per share which is still a big bump over $1.21. To maintain even a similar PE ratio we'd be looking at a $100+ share price.

__________________________________________________________________Current Snapshot:

(Bonus on support)

__________________________________________________________________Current Outlook:

Bullish - buying to sell shovels and buy into the skynet revolution

(Disclaimer: Literally none of this is financial advice. If you take this as financial advice, the only thing you better be sending me are sad cat gifs. I am not liable for your financial gains or losses - this is just my uninformed opinion. Also everyone should be properly credited for their work - if I didn't let me know and I'll fix it)