We recently compiled a list of the 20 Worst Performing AI Stocks of Last Week. In this article, we are going to take a look at where Vertiv Holdings Co (NYSE:VRT) stands against the other AI stocks.
US Stocks in September
This September saw a sluggish start for most US stocks, and large-cap technology stocks were no exception to this trend. The main driving factors for this development include concerns over the health of the American economy resurfacing, particularly in light of the August jobs report. The report underscored the labor market’s weakness in the US, which has not left investors feeling all that secure about the state of the economy.
On the stock side, many investor favorites in the artificial intelligence (AI) space have been doing poorly so far in September, with losses ranging from around 4% to even over 20% for the first week of September. The primary reason for this decline seems to be that investors are just not satisfied with the growth demonstrated by major AI companies at present. While growth is definitely present, it’s continuing to fall short of investor expectations, which have increased exponentially in light of the hype cycle created around AI stocks.
Are We Really In An AI Bubble?
The first week of September was actually the worst week for chip stocks recorded in over two years. Many investors are now beginning to wonder whether AI is worth the amount of money being poured into it, resulting in corporate spending on AI coming under greater scrutiny than ever before. The greater scrutiny is predominantly because of investors and analysts now thinking that many AI stocks are overhyped and overvalued and don’t have the means to justify this hype and valuation – essentially, the main concern is that we’re in an AI bubble that’s on the brink of bursting.
However, as with any high-tension market situation, there are diverging opinions as well. In his September 6 interview on CNBC’s “Closing Bell Overtime,” Deepwater Asset Management’s managing partner, Gene Munster, emphatically stated that we are not in an AI bubble. For him, the bigger problem in the AI space is that every other company today is trying to talk about AI and say that it’s working towards AI incorporation in its operations – something that’s leading to a lot of noise in the market, which is drowning out the voices of companies offering real substance in this space. He thus noted that it’s important for investors to be careful not to invest in just any company that says it’s working with AI and instead to focus on the better, perhaps more boring, options in the market.
According to Munster, the main players to keep your money in are predominantly big tech names, as these are the only companies that are poised to deliver substantial growth instead of just generating noise. However, investors are still confused about whether AI is a good place to invest in even today, which is why we’ve compiled a list of the worst performing AI stocks in September so far and explained whether these stocks are worth picking up or if they’re just temporary beneficiaries of the hype around AI.
Our Methodology
We compiled our list by screening for AI stocks that have seen declines of 10% or above in the first week of September, and then ranked the stocks based on their weekly decline as of Friday, September 6. We have also mentioned the number of hedge funds holding stakes in each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a group of technicians working on complex data center systems.
Vertiv Holdings Co (NYSE:VRT)
Weekly Decline: 12.05%
Number of Hedge Fund Holders: 92
Vertiv Holdings Co (NYSE:VRT) is an electrical components and equipment company based in Westerville, Ohio. It offers critical digital infrastructure tech and life cycle services for data centers, communication networks, and commercial and industrial environments.
In the second quarter, Vertiv Holdings Co (NYSE:VRT) saw its organic orders growth come in at 57%, significantly above the 37% growth figure reported in the second quarter of 2023. Net sales also grew by 13%, while operating profit grew by 63% year-over-year. The organic order growth is important to note, seeing as increased orders translate into higher revenue for Vertiv Holdings Co (NYSE:VRT) when it performs its services.
Since Vertiv Holdings Co (NYSE:VRT) has offered not only profit growth but also revenue growth in the second quarter, many investors are eagerly following the stock’s performance because of the potential it has for accelerated revenue growth. The main drivers for this growth include increased scaling of AI deployment since Vertiv Holdings Co (NYSE:VRT) has the capacity to seize this opportunity while continuing to invest in capacity for the future.
Vertiv Holdings Co (NYSE:VRT) is also considered to be the connective tissue between IT and facilities in data centers. Many analysts consider the AI data centers space to be the area offering the highest growth potential within AI, seeing as investments in this space have only been increasing this year. This is why Vertiv Holdings Co (NYSE:VRT) seems to be uniquely positioned to benefit in this market. In light of all this, the current decline of the stock shouldn’t raise any alarms just yet.
In total, 92 hedge funds were long Vertiv Holdings Co (NYSE:VRT) in the second quarter, with a total stake value of $3.2 billion.
Baron Funds mentioned Vertiv Holdings Co (NYSE:VRT) in its second-quarter 2024 investor letter:
“Vertiv Holdings Co (NYSE:VRT) a leading provider of critical digital infrastructure for data centers, contributed during the quarter. As an industry leader in data center cooling and power management, Vertiv is poised to benefit from AI-driven growth in data center spend. The NVIDIA partner network, strong industry relationships, and broad product portfolio that Vertiv maintains enables its participation in the creation of the technology roadmap for the future of the data center. In addition, Vertiv is investing in its capacity to serve this growing end market more effectively. The company also has an extensive global service network to aid customers as they grow. We believe the company has durable competitive advantages and a flexible balance sheet to benefit from the expected significant capital investment in data centers for years to come. Vertiv reported very strong results for the March quarter, with orders up 60%, which highlighted the strong demand it is seeing for its products. We sold some of our position into strength after the runup from the positive report, but still hold a major position in the Fund as we see considerable upside in the shares over time.”
Overall VRT ranks 12th on our list of the worst performing AI stocks last week. While we acknowledge the potential of VRT as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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