Thematic: 8/10
Fundamentals: 8/10
Valuation: 3/10
Brief Overview
Vertiv will not win any hypergrowth stock awards, especially as management has previously offered CAGR guidance of 15% to 17% through 2029. Rather, it’s where Vertiv is positioned as an AI infrastructure partner especially as the trend turns toward modular infrastructure that makes this a stock to watch. Essentially, all roads point toward Vertiv’s power and thermal solutions becoming increasingly important for future generations of rack scale solutions, with the company already preparing 800V DC solutions for Nvidia’s Rubin Ultra platform due in 2027.
Revenue
Vertiv reported revenue up 29% YoY and 1% QoQ to $2.676 billion, well ahead of its original guidance for 23% growth in the third quarter. This was driven by 43% YoY growth in the Americas on accelerated AI demand and 20% growth in APAC.
For Q4, Vertiv guided for revenue to be $2.81 billion to $2.89 billion, up 6.5% QoQ and 18-22% YoY at the $2.85 billion midpoint. While this was ahead of previous guidance for $2.735 to $2.815 billion, this would still represent a nine point deceleration on the topline at midpoint. Management expects Americas revenue to be up high-30s, APAC up mid-single digits and EMEA down high single digits but up mid-teens QoQ.
The strong outperformance in Q3 also led to Vertiv hiking its FY25 revenue guidance from $10 billion at midpoint to $10.2 billion at midpoint, pointing to organic growth of 26-28% YoY. Management did not provide any direct insight into FY26, though they did say that based on the “substantial backlog and clear visibility of pipeline, we anticipate continued significant organic sales growth in 2026,” with EMEA potentially reaccelerating in 2H 2026.
AI Revenue Metrics
Vertiv’s backlog rose ~30% YoY and 12% QoQ to $9.5 billion, reaccelerating from 21% YoY growth last quarter. More importantly, the $1 billion sequential increase in backlog was the largest in more than two years. However, one of the stronger metrics was order growth, with Vertiv reporting organic orders up 60% YoY and 20% QoQ in Q3. This drove a ten point rebound in TTM organic order growth to 21% YoY, from 11% in Q2.
However, starting in Q4, Vertiv will no longer report on quarterly orders and backlog information, and instead will report a new metric “projected full year orders.”
The following was stated in Q2: “Beginning on our Q4 and full year 2025 earnings call, we will provide projected full year orders rather than quarterly orders and backlog information. We believe this better aligns with how we run our business. We will provide updates on the full year projections quarterly as we progress through the year and as we deem necessary.” This could create a boost to Vertiv’s stock to remove the lumpiness from quarterly reports and to also be more forward looking in terms of visibility offered to investors.
Earnings
Vertiv reported adjusted EPS up 63% YoY to $1.25 in the quarter, beating the $0.99 estimate by 25%. GAAP EPS of $1.02 beat estimates by 16.7%. For Q4, adjusted EPS was guided to decelerate to 27% growth to $1.26 at midpoint.
For the full year, Vertiv raised its adjusted EPS forecast to $4.07 to $4.13, up from its prior view for $3.75 to $3.85. At midpoint, this represented a nearly 8% hike, now pointing to 44% YoY growth versus 33% previously.
Margins
Vertiv reported expanding margins across the board in Q3, though Q4 is expected to be approximately flat for adjusted operating margin.
- Gross margin was 37.8%, up 1.3 points YoY and 3.8 points QoQ.
- GAAP operating margin was 19.3%, up 1.4 points YoY and 2.5 points QoQ. Adjusted operating margin was 22.3%, up 2.2 points YoY and 3.8 points QoQ, driven by tariff mitigation efforts and strong execution addressing operational inefficiencies.
- Net margin was 14.9%, up 6.4 points YoY and 2.6 points QoQ.
For Q4, adjusted operating margin was guided to be up 0.9 points YoY and approximately flat QoQ at 22.4%, as “progress addressing operational inefficiencies [is] offset by acceleration in growth investments and negative impact from new tariffs.” This is a rather steep decrease from Q2’s guidance for 23.6%, which would’ve been its best adjusted operating margin print since going public in 2020.
For FY25, Vertiv slightly raised its adjusted operating margin forecast by 0.2 points at midpoint to 20.2%, representing YoY expansion of 0.8 points. This is strong as it comes in the face of “significant headwinds from tariffs and operational inefficiencies driven by supply chain actions to mitigate tariffs.” Tariff impacts are expected to be materially offset exiting Q1 ’26.
Cash
Vertiv reported strong cash flows in Q3, with operating cash flow of $508.7 million, up nearly 36% YoY. OCF margin was 19%, up 1.8 points YoY and 6.8 points QoQ.
Q3 adjusted free cash flow was $462 million, up 32% YoY. Adjusted FCF margin was 17.3%, up 1.1 points YoY and 6.8 points QoQ. Q4 adjusted FCF was guided to be $496 million for a 17.4% margin, up marginally from Q3. Vertiv boosted its adjusted FCF guidance by $100 million, now forecasting $1.5 billion for the year, up from $1.4 billion previously. This corresponds to a 14.7% margin.
Accounts receivable dipped (1%) QoQ to $2.81 billion, while inventories rose less than 2% YoY to $1.43 billion.
Cash, equivalents and investments totaled $1.94 billion, while debt totaled $2.90 billion.
Valuation
Vertiv is trading at peak multiples on the top line, and slightly below peak on the bottom line. Vertiv’s forward PS is 7.2x, above its late 2024 peak of 6.8x, and substantially higher than its April low at 2.2x forward PS.
On the bottom line, Vertiv is just below peak multiples, at 47.3x forward earnings versus its peak at 52.5x.
Notable Risks
Vertiv’s extended valuation is a primary risk as the company contends with a sharper deceleration on the top line heading into Q4, as well as a sharp deceleration in EPS growth from 63% in Q3 to 27% in Q4. Margins are also a line item to watch, considering management had guided for a Q4 adjusted operating margin of 23.6% back in Q2 but then subsequently cut that guide to 22.4% in Q3.
Conclusion:
The current quarter was not a showstopper as we prefer to be allocated more heavily to stocks that are showing signs of imminent Blackwell participation. However, Vertiv remains one to watch as the backlog increasing 12% QoQ and order growth increasing 20% QoQ could be signaling an inflection.
Damien Robbins, Equity Analyst at I/O Fund 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.
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