While many stocks stand to gain from the growth of artificial intelligence, few offer as direct a bet on the sector as AI stock Vertiv (VRT).
Vertiv, part of IBD's Big Cap 20 screen, provides the critical infrastructure needed in data centers, from heating and cooling systems to racks and storage products for data servers.
That infrastructure has been in hot demand as tech giants expand their footprint for data centers with no signs of slowing down. Vertiv has seen earnings skyrocket, and shares have soared in response.
↑ XClosing at under 14 at the end of 2022, shares have surged to around 109 today, an increase of nearly 700% that rivals the likes of AI darling Nvidia (NVDA) over the same period. Nvidia has surged more than 800% in the same period.
Vertiv is firing on all cylinders, and recent third-quarter earnings did little to buck the trend. EPS came in at 76 cents, beating analyst estimates of 69 cents, while revenue of $2.08 billion also surpassed estimates of $1.98 billion.
If Vertiv meets its fourth-quarter targets, earnings for the year will hit $2.64, a substantial increase from EPS of $1.77 last year and just 55 cents reported in 2022.
After Q3 results, a slew of analysts were quick to raise price targets on the stock. All 16 analysts that cover Vertiv have set a buy rating, with an average price target of 124.76, according to FactSet data.
Vertiv is also a fund favorite, with 54% mutual fund ownership. The stock currently boasts IBD's top Composite Rating of 99.
While Vertiv's growth has blown away expectations, further success is closely tied to AI's ability to deliver on future growth — something that carries significant uncertainty.
Two major risks loom.
The first is that AI innovation does not meet profit expectations for companies, resulting in declining investment. The second is that if economic conditions worsen, it could lead major tech firms, such as Amazon.com (AMZN) and Meta Platforms (META), to cut spending on innovation.
For investors optimistic about artificial intelligence, Vertiv represents a pure play on the industry. Nevertheless, even the most bullish investors should exercise caution due to the high concentration of megacap tech stocks in the S&P 500 and Nasdaq indexes, which also rely heavily on AI for growth.
This dependence is evident today: Vertiv shares dropped around 3% Thursday, mirroring declines in the tech sector after Microsoft issued a disappointing cloud growth forecast.
Shares of Vertiv broke out of a cup-with-handle base on Oct. 3, passing a 103.69 buy point, according to IBD MarketSurge. The stock remains near that level as it forms a three-weeks-tight pattern with an additional buy point identified at 116.41.
The relative strength line is near new highs, which is another bullish sign for the AI stock.
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