This Data Center Stock Could Go Parabolic Following Nvidia’s Blackwell Launch
Believe it or not, Nvidia was once a company primarily focused on the gaming market. However, over the last two years, the company has emerged as the world’s preeminent AI operation. How did that happen? One of Nvidia’s core products is an advanced chipset known as a graphics processing unit (GPU). GPUs are a critical piece of infrastructure in developing generative AI, becoming a business worth tens of billions of dollars for Nvidia.
Nvidia’s Upcoming Blackwell Architecture
Later this year, Nvidia is expected to release its most powerful GPU architecture yet, known as Blackwell. This launch is anticipated to be a significant tailwind for the semiconductor darling. In light of this, another enticing opportunity arises in the form of Vertiv (NYSE: VRT), a data center company that may become increasingly attractive for AI investors.
Market Projections for Blackwell
Assessing the potential scale of Blackwell’s impact on Nvidia is challenging. However, early trends from industry research are indicating that the upcoming release is poised to be a commercial success. A recent report from Morgan Stanley revealed that their forecasts suggest Blackwell could generate a remarkable $10 billion in revenue during Nvidia’s fourth quarter. Adding to this optimistic outlook, Morgan Stanley analyst Joseph Moore stated that Blackwell GPUs are already sold out for the next year. This corroborates Nvidia CEO Jensen Huang’s assertion regarding the “insane” demand for Blackwell.
Why Vertiv Stands to Benefit
At their core, GPUs can process sophisticated programs and algorithms critical for training machine learning applications and large language models (LLMs). While this might sound straightforward, GPUs are significantly more complex than simply running a software program on personal computers. IT architecture specialists such as Super Micro Computer or Dell Technologies design the infrastructure that houses these GPUs within server racks in data centers. One key issue is that data centers consume substantial energy and generate considerable heat due to the constant operation of chipsets.
Currently, traditional cooling methods, such as air conditioning units, power generators, and fans, are utilized to manage temperature. However, as investment in AI infrastructure continues to rise, data centers must adopt more efficient heat management strategies. This is where Vertiv comes into play. Vertiv specializes in an alternative energy management protocol through liquid cooling. According to TrendForce, liquid cooling is expected to double its penetration rates in data centers over the forthcoming 12 months, rising from approximately 10% today to 20% by 2025. The primary catalyst for this significant surge? The Nvidia Blackwell launch.
Assessing Vertiv Stock for Investment
Following a striking 130% rise in share price throughout this year, Vertiv stock is currently trading near all-time highs, hovering around $110. Investor expectations for Vertiv are high, as evidenced by the company’s 12-month forward price-to-earnings (P/E) ratio of 31.7, considerably above the average forward P/E of the S&P 500, which stands at about 24. This premium valuation could suggest that investors perceive Vertiv as an opportunity for substantial future gains compared to the broader market.
Nevertheless, despite its recent outperformance, I consider Vertiv a compelling opportunity that stands to benefit indirectly from the strong anticipated launch of Blackwell. As Blackwell reportedly has sold out for the next year, Nvidia will likely need to enhance its manufacturing capabilities, as many companies may miss out on their desired GPUs. This reinforces my perspective that Blackwell’s influence on the data center market—and consequently on liquid cooling specialists like Vertiv—will likely extend far beyond the immediate launch.
Conclusion
In summary, the projected success of Nvidia’s Blackwell is set to create a ripple effect through the technology sector and beyond, particularly favoring the companies involved in AI infrastructure. Given the rising demand for data centers and efficient cooling solutions, Vertiv appears well-positioned to capitalize on this growth opportunity as companies continue to expand their data center investments alongside GPU acquisitions.
