Forget Nvidia: Here’s 1 other data center stock to buy instead.

One of the hottest themes S&P 500 and Nasdaq Composite A new level of artificial intelligence (AI) is emerging. Applications from ChatGPT and competing platforms are taking the world by storm, and the momentum doesn’t appear to be slowing down.

As with all emerging growth trends, there are many opportunities to invest in artificial intelligence (AI). One of the larger areas in the AI ​​space is data centers.

while nvidia, advanced micro devices, intel and other leading chip companies are driving demand for data center services, another opportunity I’m noticing. Vertiv Holdings (VRT -7.41%) It is an emerging player developing data center infrastructure. Let’s take a look at how Vertiv is benefiting from the AI ​​boom and evaluate whether now might be a good time to acquire some stock.

A $438 Billion Opportunity

According to Statista, the overall market size for data centers will reach $438 billion by 2028. This forecast includes several aspects related to data centers, including IT architecture solutions such as storage clusters and server racks, as well as network infrastructure.

One of the biggest factors affecting data centers today is the amount of energy they consume. Vertiv is unique in that it specializes in heat collection and liquid cooling indoors in server racks and outside of data center complexes.

Image source: Getty Images.

How is Vertiv performing?

This table shows Vertiv’s operating performance in 2023.

Data source: Vertiv Investor Relations. This is a table by author.

Analyzing Vertiv’s revenue growth a little more closely, investors will see that the company is firing on all cylinders.

For the fiscal year ended Dec. 31, Vertiv increased its critical infrastructure and solutions revenue by 28%, integrated rack solutions by 12% and other services by 7.5%. The company’s acceleration in infrastructure services and rack solutions is particularly encouraging.

Additionally, Vertiv ended the fourth quarter with a 23% increase in backlog, reaching a record $5.5 billion.

Is now a good time to buy Vertiv stock?

About a month ago, Vertiv announced some interesting news to investors. The company has been selected to join Nvidia’s partner network. Vertiv joins other data center solution providers working with Nvidia to “offer expertise in solving the unique infrastructure challenges presented by accelerated computing.”

While this is not a reason to buy Vertiv stock, I see partnerships as a unique source of future lead generation. Considering that Nvidia’s data center business grew 217% year over year in 2023, we think Vertiv’s relationship with the chipmaker could be profitable in the long term as the secular AI story continues to evolve.

All of this said, one important thing to point out about Vertiv is its valuation. Interest in AI has undoubtedly driven capital markets to new highs in the past year. Big tech companies have been the main beneficiaries, but broader momentum has reached tangential companies.

Vertiv’s stock price has surged 545% over the past year, making the stock somewhat expensive. Vertiv’s forward price-to-earnings (P/E) ratio of 35 is well above the S&P 500, which boasts a forward P/E of about 21.

Nonetheless, Vertiv sees a good opportunity right now. When it comes to investing in AI, I think the opportunities in data centers are still generally under-the-radar.

The combination of strong top-line growth and a strong pipeline of yet-to-be-recognized new business makes Vertiv an attractive opportunity in the hot data center space.