The topic of artificial intelligence (AI) data center investment has been on fire in the past year. That said, valuations still matter, and investors should consider what they’re buying when they invest in data center infrastructure companies such as Vertiv (NYSE: VRT ).
I last discussed the data center power and thermal management technology stock in mid-January, and it’s up 52% since then, 62% in 2026, and up 185% over the past year. Its outstanding performance has consistently exceeded expectations for revenue and, importantly, order growth.
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Order growth continues to drive a significant increase in backlog (as shown below), and given recent capital spending commitments by hyperscalers Amazon, the alphabetand MicrosoftIt’s understandable if investors start penciling in more growth over the medium term.
Wall Street has already begun to update estimates, matching Vertue Management’s latest estimate of $2.1 billion to $2.3 billion in free cash flow (FCF) for the deal (shown below) for 2026.
Here is a reverse-engineered discounted cash flow analysis to determine the terminal growth rate needed to justify a current enterprise value of $100 billion. I’ve used Wall Street’s consensus FCF through 2028, and assumed 14% and 15% growth (g) in line with market expectations for data center spending, rising from $1 trillion in 2026 to $1.7 trillion in 2020. I have used the weighted average cost of capital (WACC) which is 9% of the technology company.
|
Matric |
Estimated 2026 |
2027 estimate |
2028 estimate |
2029 estimate |
2030 estimate |
|---|---|---|---|---|---|
|
Free cash flow |
2.287 billion dollars |
2.669 billion dollars |
3.543 billion dollars |
4.048 billion dollars |
4.648 billion dollars |
|
discount factor |
0.92 |
0.84 |
0.77 |
0.71 |
0.65 |
|
Current value |
2.098 billion dollars |
2.246 billion dollars |
2.736 billion dollars |
2.868 billion dollars |
3.021 billion dollars |
|
Total present value for the next 5 years |
12.97 million dollars |
N/A |
N/A |
N/A |
N/A |
Data source: Author’s analysis, marketscreener.com
Taking the present value of $100 billion and discounting the present value of the next five years’ FCF of $12.97 billion yields a required present value of $87 billion. This gives a terminal value (TV) of $87 billion × (1.09) ^ 5 = $134 billion.
