Vertiv (VRT) shares have sharply declined in recent weeks amid concerns over potential reductions in AI infrastructure spending, but the market reaction appears excessive, UBS Securities said in a note emailed Tuesday.

"Our conclusion is the recent sell-off is way overdone, as it implies >30% reduction in data center capacity growth vs. what was priced in just 30 days ago," according to the note.

UBS utilized its proprietary HOLT valuation framework to assess the market's implied expectations for Vertiv's growth. The analysis found that current stock pricing reflects significantly lower growth than consensus forecasts suggest.

Consensus estimates project 13% annual revenue growth and 18% annual profit growth for Vertiv from 2024 to 2028.

However, based on UBS's valuation framework, the stock's current valuation implies only 9% revenue growth and 13% profit growth over the same period translating to a $1.7 billion shortfall in projected revenue and $550 million less in cumulative EBITDA compared to consensus expectations.

The firm also translated these revenue figures into data center capacity growth, assuming a $3.5 million total addressable market per megawatt and a 10% market share for Vertiv. Under consensus estimates, Vertiv's projected $5.1 billion in revenue growth from 2024-2028 would correspond to 14,600 megawatts of new data center capacity.

However, under UBS's "what's priced in" framework based on the lower $3.4 billion revenue estimate-expected capacity growth drops to 9,700 megawatts, reflecting a reduction of 4,900 megawatts in projected capacity growth.

Additionally, the firm sees potential for a sequential rebound in Vertiv's orders in Q1, supported by continued hyperscaler capital expenditures.

UBS has a buy rating on Vertiv, with a price target of $135.

Price: 88.11, Change: -2.91, Percent Change: -3.20