HSBC bullish on Vertiv (VRT.US): data center power and cooling "pure-play" name, initiates with "buy" rating

HSBC Finance App reports that as investor enthusiasm for artificial intelligence (AI) infrastructure continues to grow, supported by an optimistic outlook from HSBC, U.S. liquid cooling leader Vertiv Holdings (VRT.US) stock reached a new all-time high intraday on Wednesday. HSBC initiated coverage of Vertiv with a “Buy” rating and a target price of $325, representing nearly an 18% upside from Wednesday’s close of $276.16. HSBC believes Vertiv is a pure play in data center power and cooling, positioning it at the fastest-growing segment within the AI supply chain.

Surging AI Capital Expenditures Drive Equipment Demand

HSBC expects capital spending by hyperscale cloud providers to accelerate significantly, forecasting U.S. cloud computing capital expenditures to grow about 91% by 2026 driven by AI. This surge in spending will directly translate into increased demand for infrastructure equipment, especially in power management and cooling systems.

Analysts estimate that by 2026, the total addressable market for power and cooling equipment will reach approximately $156 billion, up about 67% year-over-year. This reflects both increased computational intensity and the growing complexity of data center designs.

Vertiv’s Advantages as an Integrated Supplier

HSBC favors vertically integrated suppliers and believes Vertiv, Eaton (ETN.US), and Schneider Electric are best positioned to benefit from the evolution of data center architectures.

Vertiv, in particular, has a broad footprint in both power systems and thermal management, which is especially notable. According to HSBC’s supply chain analysis, about 80% of Vertiv’s revenue comes from data center-related business, one of the highest levels among peers. This positioning allows Vertiv to participate in multiple critical stages of data center construction, from uninterruptible power supplies to cooling technology.

Order Growth and Backlog Indicate Strong Demand

The report highlights that Vertiv’s recent business momentum is robust. The company’s Q4 orders increased 252% year-over-year, with backlog rising over 50% quarter-over-quarter. HSBC states these trends reflect the scale and urgency of procurement by hyperscale cloud providers—customers are accelerating deployment to support AI workloads.

Transition to Higher Power Density and Liquid Cooling Technologies

HSBC anticipates that the next phase of data center evolution will require significantly higher power densities, with rack power demands rising from around 10 kW today to approximately 1 MW for next-generation chips. This shift is driving rapid adoption of liquid cooling technologies. HSBC considers this the fastest-growing segment in thermal management and expects cooling solutions to continue increasing their share of overall infrastructure spending.

Vertiv has expanded capabilities through acquisitions, including the purchase of liquid cooling specialist CoolTera, enabling it to benefit from this transition.

Changes in Technical Architecture Present Additional Opportunities

HSBC also notes that long-term changes in power architecture, such as a potential shift to 800V DC systems, could create new opportunities. Although still in early stages, this transition could reshape competitive dynamics and favor suppliers with expertise in multi-voltage systems and system components.

Meanwhile, grid infrastructure bottlenecks and long delivery cycles for high-voltage equipment are increasing demand for integrated solutions, including on-site generation and advanced power distribution systems.

Valuation Reflects Growth Expectations but Still Has Upside

Vertiv’s valuation is higher than many industrial peers, reflecting its exposure to high-growth end markets. HSBC estimates the company’s valuation at about 28.6x projected EV/EBITDA for 2026 and roughly 40x expected P/E.

Nonetheless, HSBC believes the growth outlook justifies this valuation, citing strong return metrics and clear demand visibility.

Structural Demand Trends Support Future Outlook

In summary, HSBC sees the AI infrastructure cycle still in its early stages, with current spending more constrained by execution capacity than demand. As global data center construction accelerates and workloads continue to expand, key power and cooling equipment suppliers are expected to see sustained order growth. Among these, Vertiv—with its focused business model and integrated product offerings—is well positioned to benefit from this trend.