The Potential for this Data Center Stock to Skyrocket Post-Nvidia's Blackwell Debut
You won't believe it or not, but back in the day, Nvidia was mainly focused on the gaming market. But in the last couple of years, it's transformed into the world's leading AI operation. Curious about how they pulled off this shift?
One of Nvidia's key products is a high-tech gadget called a graphics processing unit (GPU). GPUs are crucial for AI development, especially in creating generative AI, and they've brought in billions of dollars for Nvidia as a business.
By the end of this year, Nvidia is expected to release its most powerful GPU setup yet, nicknamed Blackwell. It's a surefire boost for Nvidia, but I believe there's another promising opportunity hiding in plain sight.
Let me explain how the Blackwell launch could make data center company Vertiv a lucrative choice for AI investors.
Just how big is Blackwell going to get?
It's tough to predict for sure how much of a business Blackwell will be for Nvidia. But some industry analysts are suggesting that the release might be a real game-changer. Last month, Morgan Stanley stated that they forecast Blackwell could bring in $10 billion in revenue for Nvidia in their fourth quarter.
Shortly after Morgan Stanley's announcement, their analyst Joseph Moore reported that Blackwell GPUs were already sold out for the next 12 months. It seems that Nvidia CEO Jensen Huang wasn't exaggerating when he called the demand for Blackwell "insane."
These positive signals can only mean good things for Nvidia. Let me walk you through why the success of Blackwell could open up a significant opportunity for Vertiv.
Why Vertiv stands to gain
GPUs have the capacity to handle complex computer programs and algorithms that help train machine learning apps or large language models (LLMs). While that might sound simple, GPUs are way more complex than running software on your computer.
Companies like Super Micro Computer and Dell Technologies help build the infrastructure required to house GPUs. Essentially, GPUs are installed into clusters on server racks in data centers. Since the chipsets are continuously running programs and processing data, it's no surprise that data centers consume high energy and run the risk of overheating.
At present, data centers usually rely on air conditioning units, power generators, and fans to manage heat. But as AI infrastructure spending continues to climb, data centers will need more efficient heat management methods – and that's where Vertiv comes in.
Vertiv specializes in an energy-saving method for managing data center operations known as liquid cooling. According to research firm TrendForce, liquid cooling is predicted to see a significant rise in data center adoption in the next 12 months, doubling its current rate – from about 10% today to 20% in 2025.
The main reason for this surge in liquid cooling? Nvidia and Blackwell.
Should you buy Vertiv stock now?
Following a 130% increase in share price this year, Vertiv stock is trading at close to all-time highs, around $110.
Moreover, investors seem optimistic about Vertiv, with the company's 12-month forward price-to-earnings (P/E) ratio of 31.7 far exceeding the average forward P/E of the S&P 500 – approximately 24. This high P/E ratio might suggest that investors believe an investment in Vertiv could deliver better returns than the broader market.
Regardless, I think Vertiv remains a strong option and has the potential to benefit from a successful Blackwell launch. With Blackwell already reportedly sold out for the next 12 months, Nvidia will likely need to strengthen its partnerships with manufacturers – and I suspect numerous companies looking to acquire the new GPUs might have missed out.
This makes me believe that Blackwell could be a lasting tailwind for the data center market and liquid cooling specialists, such as Vertiv. For these reasons, I think Vertiv is well-positioned to profit from the demand for Blackwell and position itself as a sleeper hit as businesses continue to expand their data center infrastructure alongside their GPU investments.
The success of Nvidia's upcoming GPU setup, Blackwell, could potentially bring in $10 billion in revenue for the company according to Morgan Stanley's forecast. Due to the high energy consumption and heat generation of GPUs, data centers will require more efficient heat management methods in the future. Vertiv, specialized in energy-saving liquid cooling for data centers, is predicted to see a significant rise in adoption, making it a promising opportunity for AI investors.
