The artificial intelligence (AI) data center investing theme has been on fire over the last year. That said, valuations still matter, and investors need to consider what they are buying when they invest in data center infrastructure companies like Vertiv (NYSE: VRT).
I last discussed the data center power and thermal management technology stock in mid-January, and it is up 52% since then, up 62% in 2026, and up 185% over the last year. Its remarkable performance consistently exceeds expectations for revenue and, importantly, order growth.
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The order growth continues to generate a massive increase in backlog (as shown below), and given the recent capital spending commitments made by hyperscalers like Amazon, Alphabet, and Microsoft, it’s understandable if investors start penciling in more growth over the medium term.
Wall Street has already started upgrading estimates, with the consensus (shown below) for 2026 matching Vertiv management’s recent estimate of $2.1 billion to $2.3 billion in free cash flow (FCF).
Here is a truncated discounted cash flow analysis reverse-engineered to determine the terminal growth rate required to justify the current enterprise value of $100 billion. I’ve used Wall Street consensus FCF to 2028, and assumed 14% and 15% growth (g) in line with market expectations for data center spending, rising from $1 trillion in 2026 to $1.7 trillion in 2020. I’ve used a weighted average cost of capital (WACC) of 9%, which is in line with an industrial technology company.
|
Metric |
2026 Est. |
2027 Est. |
2028 Est. |
2029 Est. |
2030 Est. |
|---|---|---|---|---|---|
|
Free cash flow |
$2.287 billion |
$2.669 billion |
$3.543 billion |
$4.048 billion |
$4.648 billion |
|
Discount factor |
0.92 |
0.84 |
0.77 |
0.71 |
0.65 |
|
Present value |
$2.098 billion |
$2.246 billion |
$2.736 billion |
$2.868 billion |
$3.021 billion |
|
Sum of present value for the next 5 years |
$12.97 million |
N/A |
N/A |
N/A |
N/A |
Data sources: Author’s analysis, marketscreener.com
Taking the current $100 billion valuation and subtracting the present value of the next five years’ FCF of $12.97 billion yields a required present value of $87 billion. This gives a terminal value (TV) of $87 billion × (1.09)^5 = $134 billion.
