This Data Center Stock Could Go Parabolic Following Nvidia’s Blackwell Launch

Believe it or not, Nvidia was once primarily focused on the gaming market. However, over the last two years, the company has emerged as the world’s preeminent operation in artificial intelligence (AI). This transformative journey has largely been propelled by one of Nvidia’s core products: an advanced chipset known as a graphics processing unit (GPU). With the burgeoning field of generative AI, GPUs have become a central piece of infrastructure, resulting in a market valued at tens of billions of dollars for Nvidia.

Later this year, the launch of Nvidia’s most powerful GPU architecture yet—known as Blackwell—is anticipated. This launch will undoubtedly serve as a tailwind for the semiconductor darling. However, in this analysis, I aim to explore another enticing opportunity that investors may be overlooking: Vertiv (NYSE: VRT), a data center company that could benefit significantly from the Blackwell release.

How Big is Blackwell Going to Be?

While precise revenue figures for Blackwell remain uncertain, early industry research indicates that the launch will be monumental for Nvidia. Morgan Stanley projected that Blackwell could generate around $10 billion in revenue during Nvidia’s fourth quarter. Furthermore, the demand appears overwhelmingly strong, as stated by Morgan Stanley analyst Joseph Moore, who noted that Blackwell GPUs are already sold out for the next 12 months. Nvidia CEO Jensen Huang wasn’t exaggerating when he characterized the demand for Blackwell as “insane.”

Why Vertiv Should Benefit

At its core, GPUs have the ability to process complex algorithms necessary for training machine learning applications and large language models (LLMs). However, the technicality of GPUs is such that they are not simply software programs that can run on a conventional laptop. They require a robust IT architecture, typically provided by companies like Super Micro Computer or Dell Technologies, who construct the necessary infrastructure to house GPUs. These GPU clusters are situated on server racks within data centers. Given that GPUs are consistently processing large amounts of data, data centers are known to consume substantial energy and generate considerable heat.

Thus, traditional heat management solutions—like air conditioning units, generators, and fans—are often insufficient. As expenditures on AI infrastructure continue to soar, data centers must seek out more efficient heat management strategies. This is where Vertiv steps in. The company specializes in a cutting-edge approach to energy management known as liquid cooling. According to research from TrendForce, liquid cooling is expected to double its penetration in data centers over the next year, climbing from around 10% currently to 20% by 2025. The main catalyst driving this escalating adoption? Nvidia’s Blackwell rollout.

Is Vertiv Stock a Buy Right Now?

Following a remarkable 130% increase in share price throughout this year, Vertiv trades near all-time highs at approximately $110. Investors seem optimistic about Vertiv’s potential, as evidenced by its 12-month forward price-to-earnings (P/E) ratio of 31.7, significantly higher than the average forward P/E ratio of the S&P 500, projected at about 24. This premium hints at a sentiment among investors that Vertiv could potentially yield higher returns compared to the broader market.

Nevertheless, I maintain that Vertiv represents a compelling opportunity, especially as an indirect beneficiary of Nvidia’s successful Blackwell launch. With Blackwell already sold out for the coming twelve months, Nvidia is likely to fortify its manufacturing relationships, potentially leaving many companies that desire access to GPUs empty-handed. Consequently, Blackwell is likely to serve as a long-term tailwind for data centers and liquid cooling specialists.

In conclusion, Vertiv is well-positioned to capitalize on the growing demand for Blackwell and other GPU infrastructure. As businesses continue to expand their data center capabilities alongside their GPU investments, Vertiv stands as a subtle but promising player in this thriving market.