Vertiv stock rose Friday after plunging Thursday on a report that Amazon Web Services has developed a liquid-cooling system for its data-center computers, which was perceived as a threat to systems from Vertiv.
However, Wall Street analysts said the sell-off was an overreaction to the AWS news.
Deutsche Bank analyst Nicole DeBlase said the investor response to the news was a "knee-jerk reaction given inherent murkiness in liquid cooling (customer) disclosures."
In a blog post, AWS said that its engineers designed a proprietary In-Row Heat Exchanger (IRHX) to cool Nvidia processors running artificial intelligence workloads. It can be used for both new and existing data centers, the Amazon unit said.
The news sent shares of Vertiv and peer nVent Electric tumbling on Thursday. In intraday trades Thursday, Vertiv stock was down as much as 14.3%, with nVent down 8.4%. Vertiv stock ended the regular session down 6%, with nVent down 0.7%.
On the stock market today, Vertiv stock climbed 2.1% to close at 123.30. NVent stock rose 0.3% to end the session at 74.87.
"While AWS's In-Row Heat Exchanger is a proprietary solution developed by AWS engineers, we believe that this solution likely embeds content from scaled suppliers of liquid-cooling systems, most notably Vertiv and nVent," DeBlase said in a client note. "Simply put, it is AWS's design, but they do not manufacture it themselves."
She added, "The liquid cooling opportunity for both players remains intact."
Elsewhere on Wall Street, UBS analyst Amit Mehrotra reiterated his buy rating on Vertiv stock with a price target of 135.
In a client note, he said fears that the AWS development would hurt Vertiv sales are "misguided."
Vertiv Stock Is On IBD 50 List
"Based on our checks, we do not believe that Amazon is competing with Vertiv's liquid cooling offering," Mehrotra said. "This would entail manufacturing of many components like coolant distribution units, manifolds, pumps, radiators, heat exchangers, and cooling fluid, in addition to fans, seals, bearing-less solutions and motors."
He added, "We think it's most likely that Vertiv is partnering with Amazon in this effort, given both companies' long and deep relationship."
TD Cowen analyst Michael Elias concurred.
"Our channel checks indicate Vertiv is a key outsourced manufacturer of Amazon's IRHX solution," Elia said in a client note. He rates Vertiv stock as buy with a price target of 133.
Vertiv stock is on the IBD 50 list.
Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
