Vertiv reported exceptionally strong Q4 2024 results, but the midpoint guidance for Q1 2025 missed consensus estimates triggering a sell-off. The robust 25.8% YoY revenue growth and 77% YoY adjusted EPS growth in Q4 accented the drop-off into Q1 2025 revenue growth of 17.4% and adjusted EPS growth of 39.5%. Management stated that rather than a weak Q1, they had an “particularly strong” Q4.

Management now estimates 2025 sales at $9.2 billion at the midpoint—$75 million above November's guidance—even with a $125 million FX headwind. However, a $200 million Q4 revenue beat increased the revenue base, lowering full-year organic growth to 16% from 17%. Essentially, while absolute sales were higher, the beat diluted the year-over-year growth percentage compared to last year's forecast.

Perhaps a tad frustrating, management is contradicting itself by guiding for organic growth of 19% at the midpoint for Q1 but 16% growth for the fiscal year (i.e., slower growth later in the year) while also stating the following:

“Mark Delaney Goldman Sachs Group, Inc.

You spoke a bit already on the 1Q revenue outlook as a percent of the full year guide, but I'm hoping you can provide some more details on your expectations for the shape of the year from a top line perspective, and specifically if Blackwell supply chain readiness or other supply chain factors are gaining the revenue growth in the first half. And then on that topic, in particular with supply chain readiness, have you seen any changes in delivery schedules as a result of that?

David Fallon CFO

Yes. I can address the first part, Mark. If you look at the shape of the year from a top line perspective and really from a profitability perspective, just like prior years, we expect sequentially increases each quarter as we progress through the year.

From a percentage of the whole, similar to the first quarter, which is comparable, maybe a little bit higher than what we saw last year. We would see the cadence as a percentage of total sales each quarter in '25 to be similar to what we saw in 2024, and that's also the case as it relates to adjusted operating profit.”

How can that be – that on one hand, we have sequential increases each quarter as it progresses throughout the year yet we see Vertiv guiding lower as the year progresses? My hypothesis is that any effects from the Blackwell delay will peak in Q2 and that is what is not being revealed, as it’s not required to be at this moment (only Q1 is required). This aligns to the H2 and mid-summer discussions from other suppliers. I covered this yesterday here in the analysis “AI Hardware Suppliers Forecast Muted H1, Strong H2 – and What it Might Mean for Nvidia.”

Given we had Vertiv and Super Micro report recently, I expand more on this analysis below.

More Info on What Vertiv Results Could Mean for Nvidia (and SMCI)

As you know by now, our spidey senses are up due to suppliers not coming in with convincing QoQ growth, leading me to be believe the larger GB200 systems are delayed. Although there were rumors prior to a Q1 delay, I believe the actual issue delaying the systems is newer in nature as suppliers were on track over the past few months and it’s something more recent causing the new commentary.

Vertiv is especially sensitive to this outcome as these larger systems necessitate the power and thermal management technologies that VRT offers. Meaning, as I’ve collected the various commentary from suppliers, I was especially keen to hear Vertiv’s report as the company would have to reveal if the larger systems were shipping or not as a key supplier. Where I think the issue resides goes beyond the headline numbers and is found in the QoQ/YoY growth percentages.

Last year, Vertiv was down (12.1%) due to seasonal sequential growth from Q4-Q1. This year, Vertiv is down (16.9%) from Q4-Q1. That’s not convincing in terms of a major ramp being on time that necessitates Vertiv’s direct liquid cooling technologies. What’s even more interesting in terms of validating this theory is that Vertiv’s full year guidance slightly missed:

“2025 sales are projected to be approximately $9.2 billion at the midpoint, approximately $75 million higher than the implied sales guidance in November. And this increase is despite an estimated incremental $125 million foreign exchange headwind. So on an absolute dollar basis, organic sales are up approximately $200 million from our November outlook. Of course, our full year organic growth is lower on a percentage basis from what we presented a few months ago, 16% at the midpoint versus 17%. But this is primarily due to the significant $200 million top line beat in the fourth quarter.”

If these assumptions are correct, remember that Nvidia’s revenue will not come to a screeching halt. The B100s, B200s and leftover Hopper GPUs will continue to drive sales. Yet, it’s the GB200s that define the Blackwell generation, and if these systems are truly delayed (still need confirmation from the horse’s mouth), the risk remains to the downside for the stock.

To compare, Super Micro is less sensitive as they offer a mix of air cooled and liquid cooled systems. As you know, SMCI has been growing rapidly from the Hopper generation, and thus, is not as dependent on Blackwell’s GB200s ramping. However, there are clues that SMCI is aligned with these assumptions as the company stated the following:

“Moving on to our technology progress, we are excited to announce that our NVIDIA Blackwell products are shipping now. We have begun volume shipments of both air-cooled 10U and liquid-cooled 4U NVIDIA B200 HGX systems. Meanwhile our NVIDIA GB200 NVL72 racks are fully ready as well.” – Super Micro CEO, Charles Liang

There was additional information that implies timing is off than previously expected on the GB200s, in the most recent quarter: “And especially talking about liquid cooling, we believe DLC or overall liquid cooling, market share, will grow all the way to 30% or even more in the next 12 months.” This is a change in tone as it was previously stated DLC would be 30% of market share in 12 months in the August call (six months ago): “we are targeting 25% to 30% of the new global data center deployments to use DLC solutions in the next 12 months.” – the original statement was implying H1 of 2025 but would now be implying H2 2025. This is important because, same as above with Vertiv, DLC is closely tied to the bigger GB200 systems.

These are subtleties that quant systems won’t be able to pick up on, but as someone who follows the AI market very closely from an investor’s POV, there is a marked change of tone in terms of the time on when the systems will be delivered. These management teams are being subtle to not get in the crosshairs with Nvidia while complying to SEC regulations around their guidance.

What if I’m wrong? I’m open to that. However, I don’t have one management team giving the green light on the GB200 systems, and these earnings reports and management commentary is only increasing in number.

I provide more information on Vertiv specifically in the Q&A below.

Vertiv Revenue Growth Driven by Hyperscale and Colocation Data Center Market

As stated, the weak price action is from a weaker Q1 and the nominal fiscal year guide miss, yet it’s understandable the market has jitters over a confirmed Blackwell supplier not being able to meet estimates. Equally understandable about the weak price action is the roughly 18% guide on fiscal year revenue compared to the 17.5% guide for Q1, implying little room for upside as we continue into the year. As stated, organic growth also illustrates a similar problem – Q1 at 19% midpoint compared to FY at 16% midpoint implies a weaker Q2 perhaps.

Q4 revenue grew by 25.8% YoY and 6.4% QoQ to $2.346 billion, compared to Q3 revenue growth of 19% YoY and 6.18% QoQ to $2.074 billion.
Q4 revenue of $2.346 billion beat consensus estimates for $2.16 billion by 8.61%, compared to Q3 revenue of $2.074 billion, beating consensus estimates for $1.92 billion by 4.79%.
Organic sales grew 27.1% YoY compared to 19.2% YoY in Q3. Revenue strength was driven by the hyperscale and colocation data center market. The pipeline increased sequentially, reflecting strength in data center project activity.
Vertiv had a significant number of new product launches in Q4, but customers wanted products ASAP resulting in overdelivering the top line by $200 million higher than midpoint guidance contributing to the particularly strong Q4.
Management’s Q1 2025 revenue guide is $1.900 billion to $1.950 billion, with a midpoint at $1.925 billion representing YoY growth of 17.44%, beating estimates by 0.26%.

Regional Segment Revenue Growth will Slow for EMEA

Vertiv collects its revenues from three geographical regions.

The Americas generates the bulk of the orders, followed by APAC (primarily India) and EMEA. Americas generated 23.2% sales and 25% YoY organic sales growth driven by strong demand in colocation and hyperscale market with strong contribution from switchgear, busway, liquid cooling and services.
APAC generated 26.4% sales and 27% YoY organic sales growth driven by continued recovery in China and strong market growth in India.
EMEA generated 31.6% sales and 33% YOY organic sales driven by demand from colocation and hyperscale markets across switchgear, chillers, modular solutions and services. The Americas trailing twelve-month order growth has surpassed 50%. Vertiv noted that Q1 growth forecasts for Americas is low 20s, APAC in mid-20s and EMEA trimmed to high single-digits, down from low high-teens, due to the timing of projects being pushed forward in 2025, and more challenging comparables.

Seasonally Weak Q1 Margin is Up 170 bps YoY

Adjusted operating margin rose 383 bps YoY to 21.5%, marking the fourth consecutive quarter of margin improvement. Adjusted operating profit was $504.3 million, firmly beating management’s earlier guide of $427 million to $447 million. Margin improvement was driven by improved variable contribution margin and lower fixed costs as a percentage of sales. Management is guiding Q1 2025 adjusted operating income of $315 million to $335 million with a midpoint of $325 million, which equates to a 16.9% adjusted operating margin.

Adjusted EPS Guidance Missed Consensus Estimates as Growth Slips

Q4 adjusted EPS rose 76.79% YoY to $0.99, beating consensus estimates for $0.82 by 20.73%. Adjusted operating profit is primarily driven by volume, commercial execution and productivity, partially offset by higher OPEX investment in growth capacity and ERD.

However, management guided Q1 2025 adjusted EPS range of $0.57 to $0.63, midpoint of $0.60, falling short of the consensus estimates of $0.64. This implies a 39.53% YoY growth rate at the midpoint versus consensus analyst estimates for 48.1%.

Steady Cash Flow as Debt Remains Flat But Net Leverage Improves to 1X

Q4 operating cash flow reached its highest levels in five quarters at $425.2 million. The operating cash flow percentage has remained steady between 19.4% to 18.1% for the past three quarters. Adjusted free cash flow rose to its highest level in six quarters to $361.8 million. Debt remained flat throughout 2024 closing the year at $2.93 billion, down from $2,934 billion in Q1, however net leverage has improved from 2.2X to 1X in the same period.

Vertiv generated over $1.1 billion in adjusted free cash flow in 2024, translating into a conversion of 103% after converting 114% last year. Adjusted free cash flow for Q1 2025 is expected to be higher YoY than Q1 2024.

Backlog Peaked in Q3 as Book-to-Bill Has Been Falling Since Q1 2024

The backlog grew steadily for the past five quarters until Q4 when it dropped to 30% YoY and (2.7%) QoQ. However, the book-to-bill ratio peaked at 1.5X in Q1, dropping to 1.4X in Q2, 1.1X in Q3 and 1X in Q4. This may be due to seasonal normalization. Management stated that orders are historically “always lumpy”. The backlog to sales ratio is 78%, up from 69% in the prior year relative to 2024 actual sales.

While quarterly book-to-bill ratio has declined from 1.5X to 1X in2024, Vertiv’s trailing twelve-month organic orders are still up 30% YoY in Q4. Backlog growth trailed off in Q4 to 30% YoY down (2.4%) sequentially but still stand at $7.2 billion.

Valuation

Vertiv trades at a P/E of 76.59, forward P/E of 32.16.
The price/sales (P/S) ratio is 5.88, forward P/S is 4.66 vs five-year avg P/S of 6.5.
The price-to-free cash flow ratio is 41.05
Debt-to-equity is 1.61.

Earnings Call:

Weak Q1 Questioned by Analysts:

Management defended Q1 by saying: “Now of course, Q4 was particularly strong. So we should not look at Q1 as a quarter-to-quarter, really look at the first quarter sales as the acceleration that has taken place. With a 19% organic growth in the first quarter, I feel very, very good about what that tells us about our overall trajectory” and also “it's actually higher than what we actually saw in 2024. So I would say there's actually a step-up in '25 versus the first quarter of last year, so certainly reflective in the 19% sales growth versus the 16% full year sales growth and then also a 31% increase in adjusted operating profit.”

However, I agree with the analyst sentiment that it doesn’t check out exactly. Per I/O Fund numbers, management is contradicting itself by guiding for organic growth of 19% at the midpoint for Q1 but 16% growth for the fiscal year (i.e., slower growth later in the year). Additionally, the QoQ/YoY has to be looked at which is lower than what typical seasonality would account for, as our numbers indicate Vertiv was down (12.1%) due to seasonal sequential growth from Q4-Q1. This year, Vertiv is down (16.9%) from Q4-Q1.

Here was one Q&A exchange that voiced these concerns.

Steve Tusa

Okay. And then just one follow-up for me. Obviously, there's a lot of focus on orders, I think, for good reason. Everybody's trying to discern the trend relative to these CapEx numbers, the pipelines that are obviously pretty eye-popping. You're now two quarters step down relative to what we see at your customers and the way they're spending in these pipelines. What is that disconnect?

Is there some sort of disconnect between you guys and everybody else talking about doubling their data center businesses? I admit, obviously, that's a lower base for some of these guys. But what is that disconnect between you and your customer spending that seems to have opened up here over the last two quarters?

Giordano Albertazzi

I don't think there is a disconnect, quite honestly. If you look at our orders trajectory last year, if you think about a 60% year-on-year growth in the first half of the last year, that's a lot of growth. When our customers talk about their CapEx, of course, they also talk about a lot of the silicon part of their CapEx, not all the data centers. So, I feel pretty good about our visibility of the market and what we win in the market. So, I don't think there is a disconnect.

Additional Q&A Points: Robust Colocation and Hyperscale Markets

Chairman David Cote noted that Vertiv’s stock price has been very volatile on the news, as shares surged higher on Stargate news and fell excessively on Deep Seek news, which was actually good news for them.

“I'd have to say, over the last two or three months, we've been actually quite surprised to see the overreactions to any kind of news in our stock, whether it was the Stargate up the Deep Seek, big crush downward, which made no sense, given that the news implying lower cost to compute, meaning More data, meaning more data centers, meaning more verdict was actually good, not negative.”

Furthermore, Cote also took a jab at the analysts for being overly critical in reaction to the orders data in the Q4 earnings release.

“Again, orders are quite strong for us, but if you take a look at orders historically, they're always lumpy. They're just the way it is. It's just the lumpy quarter to quarter, and it seems to be masking the really good news we had in the fourth quarter regarding America's orders, especially as you look at hyper and colo, which is a focus for everyone extraordinarily strong.”

Vertiv had a significant number of new product launches in Q4, but customers wanted products ASAP resulting in overdelivering the top line by $200 million higher than midpoint guidance. Broad economic uncertainty entering 2025 in China, cautiously optimistic. Markets remain robust and have good visibility into the future. CEO Albertazzi is more confident in its five-year outlook than ever before. He stated:

“We believe our strong backlog and new product pipeline sets up very well for many years, as Dave noted in his remark, we have heard consistently also from the largest hyperscalers, that likely compute and LLM efficiency should drive more AI adoption. Most of these hyperscalers have confirmed significant increases in their capex span to support AI. This means large investments in data center builds that need our equipment and services.”

“In 2024 we expanded and strengthened our supply base and manufacturing footprint in the United States as part of our overall capacity strategy with the customer demand we see in the US. Vertical operating system is truly becoming part of the culture that is translating into tangible productivity gains, it is also liberating capacity needed to support the strong demand trajectory in combination with our ongoing footprint expansion.”

Management was adamant in making the point that they are a leader in power management. The system matters more than ever with the increasing densification of enabling AI data centers. Vertiv sees more opportunities to further integrate power conversion, distribution and thermal management in ways to simplify critical mechanical and electric infrastructure.

“Power Management represents approximately 1/3 of our total business, and we have been in this market for decades, at global scale, when we engage with our customers on their system designs, our full view of the power system enables us to help them properly scope the solution and right side each element of the infrastructure, we offer an holistic view of the total infrastructure and have access To and engagement with customers regarding their full facility design and challenges. Our visibility into the future of the IT load and our leading R and D allow us to partner with our customers to make their infrastructure, very importantly, future proof.”

Vertiv makes technology-based acquisitions early in the maturity curve that reinforce organic process and scale globally. For example, the BSC acquisition announced in December has high efficiency and capacity centrifugal chiller and heat reuse technology, which is increasingly being used to support high density compute application.

Conclusion:

The word “disconnect” used by the JPM analyst is a great word, as there is certainly a disconnect between what we’ve seen from Big Tech capex being raised to unprecedented levels nearing $300 billion, yet many suppliers including Vertiv are forecasting a muted Q1. Equally as questionable right now is Q2 as the suppliers we track closely seem to be in unison between the H2, mid-summer commentary. Vertiv did not say this directly, yet their guide implies something hidden in the middle of Q1 and FY. I’m guessing it’s Q2 and will keep you in the loop as we go along.

Should this happen, you can expect the news and pundits to stir up custom silicon eating into Nvidia’s GPU market share narratives, commoditization of hardware narratives as Nvidia isn’t that great after all, etcetera. The DeepSeek reaction is a warm-up to how fast sentiment can turn on a stock. Yet, any delays from Nvidia’s Blackwell systems aren’t going to matter in the long run – we know this capex is pointed straight at Nvidia and a handful of suppliers. It won’t even matter this time next year. Our plan is to load up at lower prices. If we trim, it will be nominal (you know we like to trim and get stocks lower, it’s our style). This was generally outlined for you here. You can expect more actionable information in the webinar tomorrow as well as through trade alerts.

I/O Fund Equity Analyst, Jea Yu, contributed to this analysis

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

Vertiv: Muted Q1 and What it Could Mean