Todd Gordon goes through the charts on this tech stock.
I think after yesterday's blockbuster announcement of Nvidia's $100 billion investment into OpenAI, our heads are still spinning a bit trying to make sense of it all. Is AI really going to change our lives as the thought leaders claim such as curing cancer, solving climate change, fixing the education system, mining asteroids and making available personal robots far more capable than us mere mortals? I have no idea.
But being the optimist I am, I'm going to lean towards yes. After all, I have not met too many rich pessimistic investors. To select the best investment idea for this week's column I looked through the five most critical industries for the artificial intelligence buildout. These include the following: Semiconductors and advanced computing hardware Data center infrastructure and cloud services Energy and power generation AI software, models & platforms Cooling & environmental control I had at least two names ready to put in front of you from the top-4 industries that power AI, but for today we're going to focus on a slightly less critical, slightly lower beta , catch up name of sorts - Vertiv Holdings. Back to VRT in a second. This kind of block-buster announcement combined with such an extended border market backdrop with the XLK Technology ETF up 63% from this year's lows, and 10% from this month's lows, I think it's wise to go with a slightly under the radar name in the cooling & environmental control area of the market. After all, on Aug. 19 I wrote about Bloom Energy , which is also in the Electrical Equipment industry group. That stock is up over 80% since I wrote about it less than a month ago. Yikes. Vertiv Holdings provides critical infrastructure and services for data centers with products including power management systems, cooling systems, and monitoring software to ensure uninterrupted power supplies. Vertiv is also investing in not only traditional power generation, but renewable energy, as well as battery storage to make it a key player going forward. Put simply, they help keep the world's biggest data centers online, cool, and optimized. Vertiv does work with Nvidia and in March 2024 they became a Solution Advisor: Consultant in the Nvidia partner network. This establishes them as an authority in power, cooling, and infrastructure to customers of Nvidia deploying their AI solutions . Looking at the weekly chart, we see the stock has been caught under a triple top around the $154 -$157 resistance zone that is forming a technical pattern called an "inverse head and shoulders." Traditionally the head and shoulders is a reversal pattern at the end of long trends. This is an "inverse" formation that conveys quite an opposite message of trend continuation! Looking at the indicators below we can use two developments to occur that could encourage the breakout through $157 resistance . First, I would like to see the VRT / SPY ratio move higher suggesting that VRT is again out-performing the already strong S & P 500 ETF "SPY". Second, I would like to see volume come into the stock above the 50-day average of 39.38 shares. Do you think we can get a 50 million share breakout day? Propelling these technicals is as always the fundamentals with expected top line growth rates of 25% and 15% with earnings of $3.27 in 2025 and $4.42 next year, 155% and 35% respectively. Moving to the daily, we actually get a fractal inverse head and shoulders. This smaller inverse-head-and shoulders that appears the same is actually a very small part of the larger operative weekly pattern. Same breakout zone around $154 / $157 could setup a move approaching $200 in coming months. We rebalanced/re-allocated the portfolios at Inside Edge Capital this week and took our holding in Vertiv from 1.5% to 2.5%. These are our longer-term flagship portfolios. But in the smaller, faster-money portfolio Active Opps linked below, I might try a breakout trade based on all analysis above with stops just below $135 to see if we trade above $165. Watch out for earnings on Oct. 22 with expectations of $0.87 in EPS, a 89% growth compared to the same quarter last year! -Todd Gordon, Founder of Inside Edge Capital, LLC We offer active stock alerts and portfolio management, as well as regular market updates like the idea presented above. DISCLOSURES: Gordon owns VRT personally and in his wealth management company Inside Edge Capital. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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