VRTX: Why Vertiv's AI Cooling Dominance Makes It a Buy Despite AWS's Move

The recent announcement of AWS's In-Row Heat Exchanger (IRHX) liquid cooling system sent Vertiv (VRTX) shares tumbling 6.6% on July 1, 2025. Analysts and retail traders alike feared this signaled a threat to Vertiv's market position in AI infrastructure cooling. Yet, a closer look reveals this reaction was overblown. Vertiv's technical expertise, market leadership, and undervalued stock make it a compelling “Buy” at current levels.

The Overreaction to AWS's Move

AWS's IRHX system, developed with NVIDIA, addresses a critical challenge: cooling AI chips like the Blackwell series, which generate extreme heat. While this could reduce reliance on third-party cooling solutions, the market's panic ignores Vertiv's entrenched position and the complexity of competing in this niche.

Vertiv's shares rebounded 2% by July 2, stabilizing after an initial overreaction. This volatility creates a buying opportunity, as the fundamentals remain strong.

Technical Barriers to Competition

Liquid cooling for AI chips isn't plug-and-play. It requires integration with chip architectures, compatibility with legacy data centers, and precision engineering to avoid leaks or thermal inefficiencies. Vertiv's 10-year head start in this space gives it three critical advantages:
1. Partnerships: Vertiv's solutions are already embedded in NVIDIA's reference architectures (e.g., GB200/GB300 platforms). Its modular cooling modules, like those deployed in Italy's iGenius project, are designed for hyperscalers' high-density GPU environments.
2. Scalability: The IRHX's “drop-in” design may appeal to AWS, but it doesn't address all use cases. Vertiv's prefabricated liquid cooling systems handle up to 142kW per rack—critical for exascale AI workloads—while AWS's solution targets narrower thermal demands.
3. Legacy Integration: Over 50% of data centers rely on legacy infrastructure. Vertiv's hybrid cooling systems (combining liquid and air) work with existing setups, whereas AWS's offering requires data center renovations. This limits its addressable market.

Market Leadership: Growth and Backlog Strength

Vertiv's Q1 2025 results underscore its dominance:
- Orders rose 13% YoY, with a $7.9 billion backlog (up 25% YoY).
- Net sales hit $2.04 billion, up 24% YoY, driven by AI infrastructure demand.
- Adjusted EPS surged 49% YoY, reflecting margin expansion from higher-margin liquid cooling sales.

Analysts at Citi called the July sell-off “overdone,” citing Vertiv's $9.5 billion full-year revenue guidance and its role in 60% of hyperscaler AI deployments. Competitors like nVent (NVT) and TE Connectivity (notably absent from Vertiv's core thermal space) lack this scale or partnerships.

Undervalued: A Buying Opportunity at $128

VRTX trades at 12x forward P/E, below its 5-year average of 15x, despite 22% EPS growth expectations. Contrast this with nVent's 18x P/E or AWS's 35x multiple—both valuations reflect overconfidence in their cooling capabilities.

The backlog and raised guidance signal sustained demand, even as competitors enter the space. Vertiv's USMCA qualification for Mexico-based production will further reduce lead times and costs, amplifying margins.

Risks, But Manageable

• Tariffs: Vertiv's supply chain flexibility (e.g., Mexico production) and pricing power mitigate risks.
• nVent's Expansion: While nVent's $975M Avail acquisition strengthens its electrical infrastructure, it lacks Vertiv's thermal expertise and AI partnerships.

Conclusion: Buy Vertiv at $128

AWS's move highlights the AI cooling sector's growth but doesn't displace Vertiv. The stock's dip to $128 creates a rare entry point into a company with 25% backlog growth, NVIDIA's trust, and $9.5B+ revenue visibility. With the liquid cooling market set to double to 30% of the thermal sector by 2027, Vertiv's technical moat and undervalued stock make it a “Buy” for long-term gains.

Action: Accumulate shares of VRTX at current levels, targeting $150–$160 by end-2025.