The Hidden Synergy: Vertiv's Liquid Cooling Alliance with Amazon Fuels AI Infrastructure Growth

The tech industry's relentless pursuit of efficiency has long pitted companies against one another in a battle for market share. But a quiet revolution is underway: strategic collaborations are increasingly replacing cutthroat competition, especially in the race to power the next generation of AI infrastructure. Nowhere is this clearer than in the partnership between Vertiv (VRTX) and Amazon Web Services (AWS), which—despite initial fears of disruption—has positioned Vertiv as a critical enabler of the cloud giant's ambitions.

At first glance, the relationship appears fraught with tension. AWS's 2024 announcement of its custom In-Row Heat Exchanger (IRHX) cooling system, developed with NVIDIA, sent Vertiv's stock plummeting 14%. Investors feared Amazon was cutting out third-party providers like Vertiv to build cooling solutions in-house. But a closer look reveals a different story: Vertiv's expertise in liquid cooling remains indispensable, and AWS's innovation is more complementary than competitive.

The Technical Edge: Why Vertiv Can't Be Replicated

Vertiv's liquid cooling systems—such as the recently launched Vertiv™ CoolChip CDU 70, 100, and 600 models—are engineered to handle the extreme thermal demands of AI workloads. These systems, which range from 70 kW to 600 kW cooling capacities, offer precision temperature control (±1°C) and advanced filtration, features that require years of R&D to perfect. For AWS, replicating such complexity would divert resources from its core mission of delivering cloud services.

Take the Vertiv™ Liebert XDU1350, a direct-to-chip cooling unit that reduces data center power consumption by 10% compared to air cooling. This level of efficiency is critical for AWS's hyperscale AI operations, which are projected to account for 30% of global data center energy use by 2027. UBS analysts argue that Amazon's IRHX system likely relies on components like Vertiv's coolant distribution units (CDUs) and heat exchangers, making the relationship more symbiotic than adversarial.

UBS's Bullish Case: A Misguided Selloff

UBS's recent reaffirmation of a “Buy” rating on Vertiv—despite the stock's dip—rests on a clear thesis: investors overreacted to the AWS announcement. The firm's $135 price target (upside of 22% from current levels) hinges on three pillars:
1. Market Leadership: Vertiv's liquid cooling solutions now command 15% of the thermal management market and are on track to reach 30% by 2027.
2. Technical Barriers: Replicating Vertiv's CDUs, manifolds, and leak-detection systems would take years, a luxury AWS lacks as it races to scale AI infrastructure.
3. Strategic Alliances: Vertiv's partnerships with NVIDIA and its own AI Hub ecosystem position it as an irreplaceable partner for cloud giants.

Why Vertiv's Stock Is Undervalued—and Poised to Rebound

Vertiv's valuation currently reflects short-term fears, not long-term realities. The company's trailing revenue growth of 20.45% over the past year and its expansion into Europe (via the CoolChip CDU rollout) underscore its momentum. UBS also cites the appointment of Mike Giresi as CIO—a move to accelerate AI and cybersecurity integration—as a catalyst for future growth.

Critically, the market has misread AWS's move. The IRHX system isn't a standalone threat but a niche solution for NVIDIA GPUs, leaving Vertiv to dominate broader liquid cooling needs. As Dell'Oro Group notes, the global liquid cooling market is set to hit $2 billion by 2027, with Vertiv uniquely placed to capture this growth.

Investment Takeaway: Buy the Dip

Vertiv's stock presents a compelling entry point. At current levels, it trades at 1.8x forward revenue, below its historical average and far below the 2.5x multiple of peers like Emerson Electric. UBS's $135 price target isn't just ambitious—it's achievable as AI adoption accelerates and Vertiv's partnerships bear fruit.

The era of tech titans going it alone is over. In an industry where efficiency is non-negotiable, Vertiv's collaboration-driven model—providing the plumbing (literally and figuratively) for Amazon's AI future—is a recipe for sustained growth. This isn't just about cooling systems; it's about owning the infrastructure that powers the next wave of innovation.

For investors, the message is clear: Vertiv's stock is undervalued, its moat is real, and its partnership with AWS—whether explicit or implicit—is a win-win. This is a buy at $109 and a hold for the long term.