Vertiv: A Data Center Fable

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The air, you see, is thick with whispers of artificial intelligence. A fever dream of data centers blooming like monstrous, metallic fungi. And within this burgeoning landscape, a company called Vertiv has become… conspicuous. Valuation, however, remains a matter of some delicacy, a phantom limb of common sense that investors seem determined to ignore. One must consider, after all, what one is actually acquiring – a share in a functioning enterprise, or merely a sliver of the prevailing madness?

Vertiv’s Growth: An Exaggerated Report

I last cast my eye upon this establishment in mid-January, and the numbers, it must be said, have performed a most peculiar dance. A rise of 52% since then! 62% in the coming year, they proclaim! 185% over the past twelve months! It is as if the very accountants have been possessed by a spirit of optimistic delusion. Revenue and order growth exceed expectations, they say. One wonders, of course, if the expectations themselves were not set at a level previously known only to dreamers and charlatans.

This order growth, a veritable cascade of paper and promises, generates a backlog of impressive, if somewhat terrifying, proportions (see the diagram below). The hyperscalers – Amazon, Alphabet, Microsoft – have made commitments, naturally. They always do. It is a ritual, a grand performance of capital expenditure. One can almost smell the ink drying on the contracts, a scent not entirely dissimilar to that of damp basement and regret.

Wall Street’s Fantasies

Wall Street, predictably, has begun to adjust its estimations. The consensus, a curious hive mind of speculation and self-interest, now aligns with Vertiv’s own pronouncements of $2.1 to $2.3 billion in free cash flow by 2026. A most convenient agreement, wouldn’t you say? I have, with some effort and a considerable amount of black coffee, constructed a discounted cash flow analysis. A tedious exercise, to be sure, but one occasionally necessary to remind oneself that numbers, unlike rumors, are at least theoretically grounded in reality.

I have assumed growth rates in line with market expectations – a rise from $1 trillion in 2026 to $1.7 trillion in 2030. A perfectly reasonable projection, of course, assuming that the world continues to demand ever more digital frippery. I employed a weighted average cost of capital of 9%, a figure as arbitrary and unyielding as a government regulation.

Metric 2026 Est. 2027 Est. 2028 Est. 2029 Est. 2030 Est.
Free cash flow $2.287 billion $2.669 billion $3.543 billion $4.048 billion $4.648 billion
Discount factor 0.92 0.84 0.77 0.71 0.65
Present value $2.098 billion $2.246 billion $2.736 billion $2.868 billion $3.021 billion
Sum of present value for the next 5 years $12.97 million N/A N/A N/A N/A

Subtracting the present value of these next five years from the current $100 billion valuation yields a required present value of $87 billion. This, in turn, necessitates a terminal value of $134 billion, achieved with a growth rate of 5.3% into perpetuity. A most… optimistic proposition.

One might imagine, while observing this calculation, a small, grey imp diligently scribbling numbers on a slate, occasionally pausing to cackle with delight at the sheer absurdity of it all.

A Cautionary Tale

If the overall economy grows at a more modest 3%, a perpetual growth rate of 5.3% implies decades of above-GDP expansion. A fanciful notion, to be sure. And there are whispers, you see, of slowing investment commitments. OpenAI, it is said, is now aiming for $600 billion by 2030, down from an earlier, more extravagant, $1.4 trillion. Perhaps, even the most ardent dreamers are beginning to question the wisdom of their own ambitions.

All told, while these AI stocks will undoubtedly trade on momentum and newsflow, and may even ascend to even greater heights, a company like Vertiv appears richly priced. And it will appear even more so if these optimistic growth assumptions fail to materialize. Now, therefore, is not the time to be piling into the data center trade. It is a time for prudence, for skepticism, and for a healthy dose of cynical amusement.

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2026-03-03 16:23