According to data provided by S&P Global Market Intelligence, shares in data center infrastructure company Vertiv (VRT 15.52%) declined by 18.7% in February. The decline is due to two interconnected factors. First, there was the general sell-off in artificial intelligence (AI) and data center-related stocks, and second, Vertiv's fourth-quarter earnings report, released on Feb. 12, disappointed some investors. Here's the lowdown.
A sell-off in data center-related stocks
The news that Chinese start-up DeepSeek had released its AI model, which it believes is a fraction of the cost of U.S.-based models, sent shockwaves through the market. The fear is that the growth of DeepSeek's AI would lead to a negative revision in expectations for AI-driven data center spending.
NYSE: VRT
Key Data Points
That's why any stock related to the investment theme took a hit, from power generators to chip designers to power equipment suppliers. Data center equipment companies like Vertiv also took a hit.
However, as Vertiv's Executive Chairman Dave Cote noted on the earnings call, the sell-off "made no sense given that the news implying lower cost to compute, meaning more data, meaning more data centers, meaning more Vertiv was actually good, not negative."
In addition, if DeepSeek's solution increases the adoption of AI, it will contribute to the snowball effect of growing widespread use of AI -- a net positive for the data center equipment companies.
Disappointing orders
Cote also addressed the second issue, which turns out to be more stock-specific: namely, fourth-quarter order growth -- or rather, the lack of fourth-quarter order growth -- compared to the same period last year.
Vertiv's trailing-12-month orders rose a whopping 30%, and its backlog rose 30% at the end of 2024 compared to the end of 2023. However, as stated on the earnings release, "Fourth quarter orders [are] approximately flat relative to same quarter last year mainly influenced by timing of orders in EMEA."
During the earnings call, Wall Street analysts zeroed in on the question of Europe, Middle East, and Africa (EMEA) orders. CEO Giordano Albertazzi acknowledged that "there is clearly a movement to the right of some of the pipeline" regarding EMEA orders, putting it down to "regulatory, slower decision-making, all of the above at the same time."
Image source: Getty Images.
The slowdown is probably related to new energy-efficiency regulations in effect in 2025 in connection with sustainability targets for data centers in the EU.
That said, if it's more a question of order delays (and possibly a natural retraction from a pull forward in 2024 ahead of the regulatory implementations) than of end demand, the orders will likely get filled at some point. Still, any bad near-term news will cause some investors to sell the stock, and that's why Vertiv declined in February.
