Buy this stock to play an AI bounce, analyst says

By Tomi Kilgore

Vertiv's stock has lost a more than a third of its value in less than three months, and Mizuho's Brett Linzey says it's time to buy

The recent broad unwinding of the artificial-intelligence trade has created an opportunity to buy stocks of some AI plays on the cheap.

Vertiv Holdings Co.'s stock (VRT) is one of those cheap AI plays, according to Mizuho analyst Brett Linzey.

He upgraded the AI infrastructure company's stock to outperform from neutral, saying it now looks "attractively valued" on a variety of metrics. The price target was trimmed to $92 from $95, but the new target still implies about 33% upside from current levels.

Vertiv is in AI business as it provides power, cooling and security services for data centers. This AI link had propelled Vertiv's stock to a 251.6% gain in 2023, which was even more than the 238.9% rally in the shares of AI darling Nvidia Corp. (NVDA)

The stock was up another 121% in 2024, when it closed at a record $106.17 on May 24.

Since then, the stock has dropped 34.6%, including losing 19.8% since the end of June. In comparison, the Global X Artificial Intelligence & Technology ETF AIQ has slipped 4.2% since May 24, and dropped 7.5% since the end of June.

Mizuho's Linzey said the stock has basically traded in tandem with other AI-driven technology names, but its recent selloff has been greater than the group. As a result, Vertiv shares "now look inexpensive" versus those of its AI peers.

On July 24, Vertiv had reported second-quarter profit, revenue and free cash flow that beat expectations, and raised its full-year outlook for all three, as order growth continued to be "very strong." But the stock still tumbled 13.6% that day amid broad weakness in tech stocks - the Nasdaq-100 Index NDX dropped 3.7% with Nvidia shares losing 6.8% - and as the company said the outlook was becoming more "complex."

Linzey said that despite "cooling" AI valuations, Vertiv's fundamentals are "still hot." And with the stock's recent selloff, he believes it now looks attractively valued on many metrics, specifically price-to-earnings growth.

The stock's PEG ratio is currently at 0.48, according to FactSet data, down from 0.66 on May 24. As a reference point, Nvidia's PEG ratio is currently 0.73.

Vertiv's stock was still up 44.5% year to date, while Nvidia shares have soared 113.6%, the Global X AI ETF has tacked on 5.7% and the S&P 500 index SPX has advanced 11.6%.

-Tomi Kilgore

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08-07-24 1105ET

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