Vertiv’s Stock (VRT) Outlook Reaffirmed After AWS Cooling News: Is the Sell-Off Overdone?

Vertiv Holdings's stock price (NYSE: VRT) showed signs of recovery, despite ending the day down 6%, after a steep sell-off triggered by Amazon Web Services' (AWS) announcement of its proprietary data center cooling technology.

The market reacted sharply yesterday, with Vertiv shares initially falling more than 13%. However, buyers stepped in at $110 and the stock rallied to the close at $120.72. This morning, a reassuring note from JPMorgan analyst Stephen Tusa is tempering the panic, suggesting that the market's reaction may be an overestimation of the true impact on Vertiv's future earnings.

The catalyst for the market's anxiety was AWS's unveiling of its In-Row Heat Exchanger (IRHX), a custom-designed cooling system tailored for Nvidia's high-powered Blackwell GPUs. This system, developed in collaboration with Nvidia, combines air and liquid cooling methodologies, positioning AWS as a potential direct competitor to established cooling solution providers like Vertiv.

The knee-jerk reaction was predictable: if AWS, a major consumer of data center cooling solutions, starts building its own, what does that mean for Vertiv's bottom line?

Stephen Tusa, a highly respected analyst at JPMorgan, argues that the situation is more nuanced than the market initially perceived. Tusa maintains an Overweight rating on Vertiv with a $127 price target, indicating a continued belief in the company's long-term growth prospects.

His rationale rests on several key points. Firstly, he suggests that Vertiv was likely aware of AWS's development efforts and that such initiatives are becoming increasingly common among hyperscale data center operators. In other words, AWS's move isn't a complete surprise, nor is it an isolated incident. Channel checks conducted by JPMorgan indicate that many hyperscalers are exploring custom designs for various components, including cooling systems.

Secondly, Tusa emphasizes that AWS is unlikely to manufacture all the components of its cooling system in-house. It is highly probable that AWS will outsource the production of many components to specialized manufacturers. This outsourcing would mitigate the direct competitive threat to Vertiv, as AWS would essentially become a customer for specific cooling components, rather than a complete replacement for Vertiv's integrated solutions. The analyst argues that this outsourcing dynamic makes AWS's move “not as disruptive to the demand inflection as it's being made out to be.”

The market's overreaction also seems to disregard Vertiv's recent strong financial performance. In the first quarter of 2025, Vertiv reported earnings of 64 cents per share on sales of $2.04 billion, exceeding analyst expectations. The company also raised its full-year sales guidance by $250 million to $9.45 billion. CEO Giordano Albertazzi highlighted the accelerating demand for AI-driven data center deployments and emphasized Vertiv's strategic partnerships with Nvidia, positioning the company as a key player in the burgeoning AI factory market. Moreover, Vertiv's established relationships with other major hyperscalers and its diversified product portfolio provide a buffer against the potential impact of AWS's internal cooling initiatives.

Despite Tusa's optimistic outlook, it's important to acknowledge the inherent risks.

The data center cooling market is becoming increasingly competitive, and the development of custom solutions by major players like AWS could put pressure on Vertiv's margins and market share in the long run. While the AWS news has undoubtedly created short-term turbulence, the underlying growth drivers in the data center market, particularly the increasing demand for AI-powered infrastructure, remain firmly in place.