Does power and cooling, more than chips, set the pace of new data centers?

Thesis

The common story is that chips gate AI data center construction. Vertiv’s results point to a second gate. A GPU does nothing until it has electricity and a way to remove its heat, and Vertiv sells both. Third quarter 2026 net sales were $4,312.8 million, up 61% from a year earlier, with organic growth of 55.0%. The company’s own guidance for that quarter, issued three months earlier, was $3,650 million to $3,850 million. Actual sales cleared the top of that range by about $460 million.

Chips set the specification, and power and cooling set the schedule. Chip roadmaps decide how many kilowatts a rack draws and whether it needs liquid cooling. Whether a finished building can energize on a given date depends on switchgear, uninterruptible power supplies, chillers, coolant distribution and grid interconnection. Vertiv’s order book sits on that second set. Management said third quarter organic orders were more than 100% higher than a year earlier, and the 10-K says the majority of the December 2025 backlog is expected to ship within 12 to 18 months.

The evidence is mixed. Against the view that power and cooling are the bottleneck, management called power availability and permitting pacing items but said they are not slowing its growth, and its executive chairman said orders are strong with or without neoclouds (call transcript). Vertiv also paid $1.45 billion in cash on UtilityInnovation Group (UIG), a maker of microgrid controls that help data centers run on onsite generation while waiting for the grid. That purchase bets that the delay sits in time to power.

The market has not treated the results as uncomplicated good news. The stock closed at $232.50 on October 30, 5.46% below the prior close, and its 52-week closing range of $149.83 to $376.23 shows how far sentiment has swung.

Company History

Vertiv’s lineage runs through the first dedicated computer-room cooling business. Ralph Liebert founded the precursor company in 1946, and Liebert Corporation was established in 1965 as the industry’s first computer room air conditioning manufacturer. Emerson Electric acquired Liebert in 1987. Emerson Network Power formed in 2000 and was separated from Emerson as a standalone business in 2016, which became Vertiv.

Vertiv reached public markets through a business combination with GS Acquisition Holdings Corp, a special purpose acquisition company, and began trading on the NYSE on February 7, 2020. Its sales were $5,691.5 million in 2022 and $6,863.2 million in 2023. They reached $8,011.8 million in 2024 and $10,229.9 million in 2025.

Acquisitions now play a larger role. Vertiv bought Great Lakes (closed August 20, 2025, total consideration $203.5 million) and PurgeRite, a fluid-management services firm for liquid cooling loops (closed December 4, 2025, $1,138.3 million net of cash acquired). Three smaller deals closed in 2026 for $331.8 million net of cash. UIG closed on October 26, 2026, after the quarter ended. Acquired businesses contributed about 6% of third quarter sales growth.

The company is run by Giordano Albertazzi, who is quoted in the third quarter release: We are in the middle of the largest infrastructure buildout and it’s accelerating.

Product

Vertiv reports two sales lines: products, and services and spares. Its products include AC/DC power management, thermal management, switchgear, busway, air-cooled and liquid-cooled thermal products, integrated modular solutions and racks. The 10-K lists end markets of data centers (hyperscale, colocation, neocloud and enterprise), communication networks, and commercial and industrial sites.

Thermal management and liquid cooling

Thermal gear removes heat from servers, either by moving chilled air or by circulating coolant to the chip. Vertiv sells air-side equipment, chillers and liquid-cooled products. On the third quarter call, management said it is on track to double chiller production capacity by year end.

NVIDIA’s own engineering note on rack power supplies a reason liquid cooling and new power architectures arrive together. It says that once racks exceed 200 kilowatts, current 54-volt distribution begins to hit physical limits. Heat and electrical conversion losses scale with the same load, so thermal and power products tend to be specified as a pair.

Power trains

The power train runs from the grid connection through switchgear, uninterruptible power supplies (UPS, batteries that bridge outages), power distribution units and busways to the rack. The next change is a move to 800-volt direct current distribution. NVIDIA says a 1 megawatt rack on 54 volts would need up to 200 kg of copper busbar and that 54-volt power shelves for its Kyber rack would take up to 64 U of rack space. It targets 1 megawatt racks starting in 2027 and names Eaton, Schneider Electric and Vertiv as power system partners.

Vertiv’s own timeline on the third quarter call described 800-volt products as in validation now, with revenue starting during 2027 and deployment into the market in 2028. The cost claims (up to 30% lower total cost of ownership) are NVIDIA’s projections and are unverified.

UIG adds the upstream end of the chain: microgrid controls, onsite generation and storage orchestration, and switchgear for behind-the-meter power. UIG was founded in 2020, is based in Raleigh, North Carolina, and builds in North Carolina and New Jersey. Vertiv expects the deal to add to adjusted earnings per share in the first year after closing.

Services and integrated solutions

Services and spares cover preventive maintenance, monitoring, project management and parts. Vertiv has about 5,000 service engineers and over 300 service centers. Third quarter services and spares were roughly $0.7 billion, but the 10-Q presents two figures: $675.7 million labeled “Net sales - services” on the income statement and $719.0 million labeled “Services & spares” in the revenue note, a gap of $43.3 million. Total net sales are the same $4,312.8 million in both tables, so the difference is classification. The revenue note defines services and spares to include spare parts, which the income statement line does not name, and the filing does not reconcile the two. We use $719.0 million when discussing the services and spares offering. Management said attach rates are improving but gave no numbers (call transcript).

The integrated products (the OneCore and SmartRun prefabricated designs) matter for the central question because they shorten installation. Management said pre-engineered reference designs cut design time by a factor of 10 and factory-built modular deployment cuts deployment time by up to half. It cites one Norwegian data center campus applying this at a 41 MW first phase. These are company claims from a call, not audited results.

Market

Customer

Vertiv sells to hyperscalers, colocation providers, neoclouds and enterprises, and the 10-K warns that the loss of any one customer or a significant cut in its spending could have an outsized effect. On the third quarter call management named EdgeConneX, where Vertiv is enabling gigawatt-scale facilities, and the Gunsan AI data center in South Korea involving SGC Energy and KT Cloud (call transcript).

Geography has tilted toward the United States. The Americas were 62% of 2025 sales, up from 56% in 2024. In the third quarter, Americas sales were $2,988.8 million, up 74.5%; Asia Pacific was $779.3 million, up 49.9%; and EMEA was $544.7 million, up 22.8%. Adjusted segment operating margins were 29.4% in the Americas, 17.0% in Asia Pacific and 28.0% in EMEA, so geographic mix affects the blended margin.

Market Size

Vertiv does not state a total addressable market in its 10-K Item 1. The demand driver is electricity use. Berkeley Lab estimated that US data centers used 176 terawatt-hours in 2023, about 4.4% of US electricity, up from 58 terawatt-hours in 2014. The same report projects 325 to 580 terawatt-hours by 2028, or 6.7% to 12% of the US total, depending on economic growth.

Those figures measure electricity use and say nothing about equipment spend, yet they frame the physical problem. Each added terawatt-hour requires generation, grid capacity and on-site conversion and cooling equipment, and the width of the 2028 range shows how uncertain the build rate is.

A peer data point supports the demand side. Schneider Electric reported record third quarter revenue of €11.46 billion, with data center demand growing at a triple-digit rate and its CEO citing increasing visibility into 2027 and 2028.

Competition

Competitive Landscape

The 10-K divides rivals into two groups: niche players, and large-scale global competitors. Competition is based on reliability, quality, price, service and customer relationships. In power and cooling, a data center customer wants one party to guarantee the whole chain from switchgear to chiller, so breadth of portfolio and installed service coverage matter alongside component specifications.

Vertiv’s disclosed cadence is above peer growth in its latest reported quarter. Its 55.0% organic growth compares with Schneider’s 16.9% organic for the whole company, though that comparison mixes a pure data center vendor with a diversified one. Schneider’s energy management unit, which sells power and cooling to data centers, grew 18.8%.

Competitors

Schneider Electric

The closest portfolio match in power and cooling. It has a far larger revenue base, with the energy management unit alone at €9.62 billion in the third quarter, and it has raised its 2026 organic revenue growth outlook to 12% to 14%. Its planned $22.6 billion takeover of PTC (software) points to a software-led use of capital, whereas Vertiv’s recent deals add hardware and services.

Eaton, Legrand, Huawei

The 10-K names Eaton, Legrand and Huawei alongside Schneider as large-scale rivals. Eaton is also a named partner in NVIDIA’s 800-volt program. We did not obtain a verified third quarter 2026 data center figure for Eaton, so we make no numerical comparison.

Niche specialists

The 10-K lists Delta Electronics, Stulz, Johnson Controls and Socomec as niche competitors. They compete in specific products such as thermal systems or UPS. Silicon vendors (Infineon, Texas Instruments and others) work on 800-volt power components in NVIDIA’s partner list, which could shift where value sits in the power train.

Business Model

Vertiv earns revenue by selling equipment, which is booked when delivered, and by selling service. It reports a backlog definition that covers product and services with a purchase order or commitment not yet delivered, most of it firm and expected to ship within 12 to 18 months. Management confirmed on the call that only purchase orders count in backlog, not capacity agreements.

Profitability has improved with scale. Adjusted operating margin was 25.2% in the third quarter, up 290 basis points, against 20.4% for full-year 2025. The chief financial officer put long-term incremental margins at 30% to 35%, with the low end during ramps. Management expects positive price versus cost in 2026, including tariff effects.

Deferred revenue, a liability that can include billings ahead of delivery, was $4,120.5 million at September 30, 2026, compared with $1,814.7 million at December 31, 2025. Inventories rose to $3,288.4 million at September 30, 2026 from $1,456.5 million at December 31, 2025, which the CFO tied to the ramp that supports growth (call transcript). Capital spending is rising: $425.0 million in the first nine months of 2026 versus $126.7 million a year earlier, with full-year capex guided to about 4.0% of revenue. Engineering and R&D spending was $441.7 million in 2025.

Financials

Third quarter 2026 (ended September 30). Net sales were $4,312.8 million. GAAP operating profit was $983.8 million, a 22.8% margin, and adjusted operating profit was $1,086.9 million. Diluted EPS was $1.95 and adjusted diluted EPS was $2.21, up 78%. Operating cash flow was $794.0 million and adjusted free cash flow was $652.2 million.

Quarter-to-quarter pattern. Second quarter sales were $3,274.3 million, with organic growth of 18%. The company cited temporary supply chain congestion for timing shifts. On the third quarter call, management said the revenue delayed from the second quarter was capped at around $100 million to $150 million and moved into the third. That helps explain part of the jump, though not the whole 55% organic figure. The gap between those two quarters is a reminder that deliveries, not orders, set reported sales.

Nine months. Sales were $10,236.6 million, up 39.3%, with adjusted operating margin of 23.2% against 19.3% a year earlier. Operating cash flow was $2,660.6 million.

Guidance. For fiscal 2026, Vertiv guides net sales to $14,450 million to $14,850 million, organic growth of 37% to 39%, adjusted operating margin of 23.5% to 24.5%, adjusted EPS of $7.10 to $7.20 and adjusted free cash flow of $2,600 million to $2,800 million. The original February guide was net sales of $13,250 million to $13,750 million, so the midpoint has risen by $1.15 billion across the year. Fourth quarter net sales are guided to $4,313 million to $4,513 million.

Balance sheet. At September 30, 2026, cash was $3,512.9 million and short-term investments were $198.8 million. Total debt, net of unamortized discount and issuance costs, was $2,928.5 million, including senior notes issued in March 2026 of $2,100 million and an undrawn $2,500 million revolver. Cash plus short-term investments ($3,711.7 million) less that debt is a net cash position of about $0.8 billion by our arithmetic. That is before the UIG payment of $1.45 billion at closing, which took place after the quarter ended. Goodwill and net intangibles were $3,928.5 million, about 32% of total assets at the end of 2025.

Backlog. The last dollar backlog is $15.0 billion at December 31, 2025, against $7.2 billion a year earlier and $5,526.7 million at the end of 2023. The fourth quarter 2025 book-to-bill was about 2.9x. The Q3 2026 release gives no dollar orders or backlog, and management said on the call it is not planning to share orders data going forward. Outside analysts therefore cannot track the order book between annual reports, which makes the “more than 100%” statement hard to test.

Valuation

At the October 30, 2026 close of $232.50, the 385,060,421 Class A shares outstanding at October 26 on the 10-Q cover imply a market capitalization of $89.5 billion, by our arithmetic. The shares fell 5.46% that day from a close of $245.92 on October 29. Trailing twelve-month diluted GAAP EPS is $5.35 by our arithmetic: $3.41 for 2025, less $2.27 for the first nine months of 2025, plus $4.21 for the first nine months of 2026. The price is about 43 times that figure.

On guidance, $232.50 is about 32.5 times the $7.15 midpoint of fiscal 2026 adjusted EPS, by our arithmetic. Market capitalization is about 6.1 times the $14.65 billion sales midpoint, and about 33 times the $2.7 billion midpoint of the adjusted free cash flow guide of $2,600 million to $2,800 million. These ratios use adjusted measures defined by the company.

Two context points. First, the 52-week closing range of $149.83 to $376.23 means the October 30 close sits about 38% below the high and about 55% above the low. Second, a multiple like this embeds continued growth through 2027. Management says it expects significant above-market organic growth in 2027 but the CFO declined to quantify it until guidance is given with the fourth quarter results. We do not make a fair-value claim. We note that the multiple would be sensitive to any slowing in orders, and that orders are no longer reported in dollars each quarter.

Key Opportunities

Time to power as a product

The UIG deal extends Vertiv from the rack and the building to the interconnect. UIG was bought at about 13 times expected 2027 EBITDA, and up to $1.15 billion more is payable on EBITDA targets over 12 and 24 months. If grid delays persist, a vendor that can supply onsite generation controls alongside UPS and switchgear sits in a stronger spot to win whole-site contracts. The earnout structure limits Vertiv’s exposure if UIG underdelivers.

The 800-volt transition

A move to 800-volt direct current changes the bill of materials in the power train. Vertiv describes validation as under way, revenue starting during 2027 and deployment in 2028. A new architecture resets product specifications, so incumbents with chip-partner access have an edge in early designs. Vertiv works with NVIDIA on this and takes part in NVIDIA’s AI factory reference design work, which the CEO described as a strong technology pull-through vehicle.

Liquid cooling services

As liquid loops spread, flushing, filtration, fluid management and maintenance become recurring work. PurgeRite brought that capability in for $1,138.3 million net of cash, with up to $250.0 million of additional consideration possible, of which $239.6 million was accrued at September 30. The installed base also grows with every project shipped, which feeds a service stream that is less cyclical than project hardware. Vertiv has about 5,000 service engineers to cover it.

Key Risks

Order visibility has narrowed

Vertiv’s backlog is cancellable and reschedulable per the 10-K, and the company no longer gives dollar orders each quarter. The “more than 100%” organic orders statement has no stated base. If hyperscaler spending slows, the first public sign may be a sales deceleration after a lag of several quarters, since backlog ships over 12 to 18 months.

Execution and quality

Rapid scaling carries operating risk. The CFO said the Americas faced some inefficiency from a large capacity ramp, and inventories have more than doubled since December 2025. When an analyst asked about compressors burning out, the CEO conceded the products are not perfect and said a larger share of new products widens the statistical distribution of early failures. A field failure at a hyperscale site would damage the reliability positioning that the 10-K lists first among competitive factors.

Valuation and sentiment

The stock fell 5.46% on October 30, after a close of $245.92 the day before, and the 52-week closing high is about 62% above the October 30 close. A premium multiple leaves little room for even small guidance misses, and a single quarter of delayed shipments, as in the second quarter when temporary supply chain congestion shifted revenue, can reset sentiment.

Competition and customer bargaining power

Schneider reported data center demand growing at a triple-digit rate and Eaton, Legrand and Huawei compete in the same chain. Hyperscale buyers have scale and influence over designs. Supplier agreements for components are also a constraint; management is securing and expanding long-term capacity agreements with key suppliers.

Acquisition and balance sheet drag

Vertiv spent roughly $1.14 billion on PurgeRite and $1.45 billion on UIG in under eleven months, with contingent payments on top. At the end of 2025, goodwill and intangibles were 32% of assets before UIG. Contingent consideration expense reached $34.1 million in the third quarter alone.

What Would Prove Us Wrong

Our central view is that power and cooling set the schedule for new capacity while chips set the specification, and that Vertiv’s order strength reflects that. Four observable results would argue against it.

1. Fourth quarter organic growth below guidance. Vertiv guides fourth quarter organic growth to 49% to 51%. Reported growth below 49% in the fourth quarter results due in early 2027 would suggest deliveries are limited by something other than demand.

2. Backlog fails to grow. If the year-end 2026 backlog in the FY2026 10-K is below the $15.0 billion reported a year earlier, the orders claim and the bottleneck thesis both weaken, since sales of about $14.65 billion would have been replaced by fewer new orders.

3. Margin does not reach the guided range. Fiscal 2026 adjusted operating margin below 23.5%, or adjusted free cash flow below $2,600 million, in the early 2027 report would indicate that scarcity pricing is not carrying through to profit.

4. 2027 growth below 20% organic. Management has said it expects above-market growth in 2027. If its 2027 organic guide, due with the fourth quarter results, comes in below 20%, the pace would be set by something other than a shortage of power and cooling equipment. The 20% line is our threshold, not the company’s.

Summary

Vertiv is the clearest public test of whether power and cooling constrain AI data center growth. In the latest reported quarter, sales rose 61%, adjusted operating margin reached 25.2%, and guidance for the year went up by $650 million. The company has net cash before UIG, a record backlog as of last year-end, and a roadmap that includes liquid cooling, 800-volt power and onsite generation controls.

The case that power and cooling pace the build is strongest at the site level: delivery of switchgear, UPS and cooling decides when a building can switch on, and Vertiv is working to compress that time. The case against is that chip platforms define the rack power and cooling specification, so equipment demand follows the chip roadmap, and management itself says power availability is not slowing growth.

The market priced Vertiv at about $89.5 billion on October 30 ($232.50 per share), with a trailing multiple of about 43 and less order disclosure than a year ago. The fiscal 2026 10-K in early 2027 should settle the question with year-end backlog, fourth quarter organic growth and the 2027 guide.