Data centers are being upgraded due to the rising effectiveness of artificial intelligence.

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Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

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Nvidia partner Vertiv's (NYSE: VRT) stock rose by as much as 21% in early morning trading as the company's first-quarter earnings report confirmed that there's nothing wrong with demand for data center equipment. The stock was up 10.5% around 12:30 p.m. ET. The report contained plenty of positives, and Vertiv continues to offer investors an excellent way to get exposure to AI-led demand for data center capacity.

Vertiv's excellent quarter: Orders

The two major pluses from the earnings report this morning were the hike in full-year sales guidance and the return to impressive yearly order growth. Starting with order growth, investors were disappointed in February when management reported that fourth-quarter orders were flat compared to the same quarter of the previous year. Even though its trailing-12-month orders were up 30% in the fourth quarter, the weak order performance in the quarter raised fears of deterioration in 2025.

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Fortunately, those fears were dispelled by the 13% growth in orders in the first quarter compared to the same period of 2024. Moreover, trailing-12-month orders were up 20%, and the book-to-bill ratio (a key indicator of growth) was 1.4 in the quarter.

Vertiv's excellent quarter: Guidance hike

As for the guidance update, management now expects organic net sales growth of 16.5%-19.5% compared to a prior estimate of 15%-17%. That said, the midpoint of earnings and free cash flow (FCF) guidance was kept the same, even as management raised the high end of the earnings and FCF guidance range due to favorable trading conditions but lowered the low end due to uncertainty around tariffs.

Now trading at less than 24 times the midpoint of FCF guidance for 2025, Vertiv remains an attractively priced growth stock, not least as we are still in the early innings of AI application growth.

Should you invest $1,000 in Vertiv right now?

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Shares in data center equipment company Vertiv (NYSE: VRT) rose by 14% in the week ending Friday morning. This is an excellent performance, but the stock is still down more than 40% this year. This week's positive move helps to shed light on the key driver of the stock at the moment -- sentiment over the trade tariff skirmish and what it's likely to do to spending on data centers.

Vertiv and tariffs

It's no secret that companies usually cut back on capital spending in a slowdown. This is particularly true when growth spending (rather than maintenance capital spending) has driven data center investment over the last couple of years. This leaves Vertiv exposed to the market's views on the current round of trade disputes between the U.S. and its trading partners.

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The rise this week came as news broke of a 90-day pause in tariffs above 10%, with the exception of China, whose tariff now stands at 145%. The pause, plus some conciliatory commentary indicating a willingness to do trade deals, indicates to the market that the tariffs might be more tactical than strategic in nature.

In other words, President Donald Trump may be tactically using them as a precursor to trade deals, resulting in more favorable conditions for U.S. exporters. This is distinct from more lasting strategic tariffs designed to fundamentally reshape the structure of economies. In truth, the answer probably lies somewhere in the middle.

Image source: Getty Images.

What it all means for Vertiv

If they turn out to be tactical and trade deals are signed in due course, then the dip in the Vertiv share price will prove an excellent buying opportunity as conditions should normalize, with ongoing spending on artificial intelligence (AI) applications driving data center investment. Time will tell.

Should you invest $1,000 in Vertiv right now?

Before you buy stock in Vertiv, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vertiv wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $496,779!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $659,306!*

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.