Shares in data center equipment company Vertiv Holdings (VRT 2.54%) declined by 24.1% in March, according to data provided by S&P Global Market Intelligence. Given the large slump in the share price on March 26, there’s little doubt that Vertiv’s stock is being negatively impacted by tariff actions and bans on foreign companies buying U.S. technology. In addition, some analysts downgraded expectations for near-term orders for data center equipment.
Trade actions and analyst downgrades
On March 25, the Department of Commerce banned and restricted 80 “entities” from acquiring artificial intelligence (AI) and advanced computing capability. The main intent is to stop entities like the Chinese Communist Party from acquiring key technology and stop China from developing hypersonic missiles.
What does this have to do with Vertiv? The answer is that many of the companies listed buy technology from Nvidia, and Vertiv is an Nvidia partner. As such, Vertiv could also see slowing orders as a result of these actions.
In addition, analysts at Barclays and TD Cowen turned more negative on Vertiv due to pressure on the AI/data center sector in general.
TD Cowen also feared that increased demand for AI applications and, in turn, data center capacity, would lead to hyperscalers (companies that run massive data centers designed to support cloud computing and data services) redesigning their data centers to support more demand than previously anticipated. Unfortunately, that process will likely lead to a delay in orders for the kind of power and cooling solutions that Vertiv offers to data centers.
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Vertiv’s orders are a watch item
There’s no issue with Vertiv’s current backlog; it grew 30% in 2024 to end the year on $7.2 billion, and it will support growth this year. However, Vertiv’s orders were flat in the fourth quarter compared to the same period in 2023. The company’s organic orders rose 30% over the full year, which only highlights the concern of an order slowdown in the fourth quarter.
With that in mind, the last thing investors want to hear about is a potential slowing of near-term orders from hyperscalers.
Buy Vertiv on a dip?
There’s a compelling case to do so. If hyperscalers do slow orders, it’s likely to prepare for larger-scale investment — a net positive for Vertiv in time. Moreover, management believes the slowdown in orders in the fourth quarter is connected with European regulatory issues rather than a reflection of any end demand weakness. Finally, it’s far from clear at this stage how the tariff actions will play out, not least as they may encourage investment in the U.S., which is probably a net plus for a company providing infrastructure equipment like Vertiv.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.