AI Boom Needs Vertiv Almost as Much as It Needs Nvidia

The artificial intelligence craze has driven Nvidia Corp. to a $2.3 trillion market value from about $360 billion at the beginning of last year, which means the chipmaker is trading at a price that’s 75 times higher than earnings. It is also taking some industrial companies along for the ride with a lot of room to run.

Astute investors figured out that the huge demand for everything AI will require the handling of an unimaginable amount of data that will be stored and processed at data centers. This is where the opportunities for industrials come into play. Every company that supplies something — anything — for data centers is riding the coattails of Nvidia and is being scooped up by investors.

An eclectic number of industrial companies have their fingers in the data-center pie — from Caterpillar Inc., which provides generators in case the power goes out, to Trane Technologies Plc, which makes the chillers that cool computer servers. Eaton Corp. makes all kinds of power-supply gear, and American Towers Inc. is building the complex data facilities after acquiring CoreSite in late 2021.

Caterpillar is up 24% this year through March, more than double the S&P 500 Index. Eaton jumped 30%, and Trane climbed 23%. That’s solid growth but only a bump compared with the mountain that Nvidia has scaled. That’s because the data-center play is only a small portion of these companies. Caterpillar, whose main business is making backhoes and bulldozers, had $67 billion of sales, and diesel generators for data centers is likely a tiny number. American Tower, which is being dragged down by slower investment in 5G wireless deployment, fell more than 8% this year even though CoreSite reported a second year of record data-center sales in 2023.

industrials ride nvidia's coattails

The takeaway is that the purer the play on data centers, the more Nvidia-like the stock gain. That’s the case for Vertiv Holdings Co., arguably the hottest stock among the industrials that were smart enough (or lucky enough) to be tied to the data-center boom. Vertiv, which supplies equipment to data centers, has soared 70% this year, and that’s on top of a 252% gain last year.