Key Points
The company’s revenue expectations keep improving through 2025.
Only increased costs in connection with tariffs are holding back profit increases over the near term.
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The stock for data center infrastructure company and Nvidia partner Vertiv (NYSE: VRT) is trading up 84% since the end of March. That growth could continue as the company’s underlying momentum is being masked by the effect of tariffs and an acceleration in investment to fuel future growth.
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Vertiv’s quiet growth burst
The table below shows the progression of its full-year guidance in 2025. Vertiv’s sales guidance outstrips its adjusted operating profit increases. Profit growth is lagging sales growth due to extra costs associated with tariffs and the pull-forward of investment in research and development to fuel growth.
Vertiv | In February | In April | In July | Increase in Guidance from February to July* |
|---|---|---|---|---|
Sales guidance | $9.125 million to $9.175 million | $9.325 million to $9.575 million | $9.925 million to $10.075 million | 8.7% |
Adjusted operating profit | $1.910 million to $1.960 million | $1.885 million to $1.985 million | $1,950 million to $2.030 million | 2.8% |
Free cash flow | $1.275 million to $1.325 million | $1.250 million to $1.350 million | $1.375 million to $1.425 million | 7.7% |
Data source: Vertiv, author’s analysis. *All figures calculated assuming the midpoint of guidance.
In usual circumstances, it’s reasonable to expect a company’s operating profit to expand more than its revenue growth. Margins should improve in a manufacturing company when it has larger volumes due to the benefits of scale, such as increased production efficiency and lower fixed cost per unit production.
However, provided the tariff environment doesn’t worsen for Vertiv, future orders and revenue increases are likely to translate into significant increases in profits and cash flow.
Where next for Vertiv?
Momentum continues to build in the data center end market, driven by torrid growth in artificial intelligence application demand. As such, Vertiv is in the early innings of a multi-year expansion in data center spending, and that includes its involvement in developing power systems and solutions for the next generation of data centers with Nvidia.
Vertiv has a bright future, and it’s not too late to invest in it.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
