Here's Why Data Center Equipment Company and Nvidia Partner Vertiv Soared This Week

Shares in data center equipment company and Nvidia partner Vertiv Holdings (NYSE: VRT) rose by 12% in the week ending Friday morning. The move was prompted by positive newsflow for the artificial intelligence (AI)/data center sector. Here's the lowdown.

Tariff de-escalation and a boost to American innovation

The news of an easing, albeit temporary, of tariffs between the U.S. and China is a positive for trade relations between the two countries and a plus for global growth prospects. It helps encourage spending on data centers and eases the cost pressure on companies with operations in China or those that source products directly from China.

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Vertiv benefits from both developments. If data center spending slows in response to an uncertain economic outlook created by tariffs, then Vertiv's order growth could slow.

Turning to the issue of Vertiv's cost exposure to China, management previously outlined that a "single-digit percentage of supply for U.S. factories is sourced from China." Still, it declined to give more granular detail on its tariff-related exposure. However, you can see its potential financial impact in its guidance. For example, Vertiv raised the midpoint of full-year sales guidance from $9.2 billion to a new estimate of $9.45 billion on the back of an excellent first quarter. On the other hand, the potential impact of tariffs caused management to lower the midpoint of its full-year adjusted operating margin guidance to 20.5% from 21%.

Image source: Getty Images.

As such, the de-escalation in the tariff conflict could lead to an upgrade to earnings expectations if margins improve, as its underlying growth in orders and sales is excellent, and the data center spending environment remains robust.

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.