Vertiv or Powell Industries: which stock to buy?
2026-07-10 · By Lubin Danilo, founder of Lubin Investment
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Vertiv and Powell Industries both score nearly perfect on quality in my filter, riding the same wave: electrification of data centers for artificial intelligence. Vertiv is the giant covering power and cooling worldwide, Powell Industries a smaller specialist more concentrated on a handful of very large contracts. Both trade at rich valuations, Powell somewhat less than Vertiv.
The same tailwind, two very different sail sizes
Building an AI data center is not just about stacking servers. You also need massive amounts of electricity, cooled, secured, and distributed without interruption. That is exactly the business of Vertiv and Powell Industries, but at very different scales. Vertiv is a large global company, the only one covering both power (uninterruptible power supplies, distribution) and liquid cooling for the biggest data center operators. Powell Industries is much smaller and focused on a niche product: medium voltage switchgear that distributes high power current safely, sold through sometimes very large contracts.
Nearly identical quality on paper
Both score 9 out of 10 in my filter. Vertiv posts a 20.6% free cash flow margin and a 54.4% return on invested capital. Powell does even better on that last point, with a 91.7% return on capital, one of the highest levels I have measured, on a 16.6% cash margin. Both companies grow fast: 18.9% a year for Vertiv over 5 years, 26.1% for Powell.
The shared warning sign
Both show a lengthening cash collection cycle, a signal I always watch closely. At Vertiv it reaches 100 days. At Powell it climbs to 82 days and becomes the one criterion that clearly fails in my filter: customers or component inventory take longer to turn into cash than before, consistent with giant contracts where money arrives in lumps rather than a steady flow.
The price: two expensive stocks, Powell slightly less than Vertiv
Both companies sit in the same sector in my data, electrical equipment and parts, where the median valuation runs around 34 times free cash flow. Vertiv trades at 56.1 times its own, about 1.65 times the sector median. Powell trades at 45.2 times, about 1.33 times the median: also expensive, but a notch less than Vertiv.
| Metric | Vertiv (VRT) | Powell Industries (POWL) |
|---|---|---|
| Valuation (P/FCF) | 56.1x | 45.2x |
| Return on invested capital | 54.4% | 91.7% |
| Free cash flow margin | 20.6% | 16.6% |
| 5 year sales growth | 18.9%/yr | 26.1%/yr |
| Sector median (P/FCF) | 34.05x | 34.05x |
My model computes a reasonable buy price of 281.36 dollars for Vertiv, versus 318.86 today, a fairly tight gap. For Powell, the reasonable buy price comes out at 44.63 dollars versus 232.19 currently, a much wider gap. On this specific point, Vertiv is actually the closer of the two to my fair value estimate, even though both remain above it.
The order backlog tells the demand story
Vertiv shows an AI related backlog exceeding 15 billion dollars, and guides to 13.5 to 14 billion dollars in revenue for 2026. What sets it apart is being the only large company covering both power and liquid cooling at once, two needs that are exploding together as AI chip density rises. Powell shows a more modest backlog, around 1.8 billion dollars, but just landed a single contract worth more than 400 million dollars for on site power at an AI data center, proof that even a company its size can land mega deals in this market.
The real risk: reliance on a handful of very large contracts
Vertiv serves a broad customer base of major data center operators worldwide, which mechanically smooths out swings. Powell, smaller, depends more on a handful of one off giant contracts: a concentrated backlog can work wonders one year and disappoint the next if new mega deals are slow to arrive. That is the flip side of a niche business: concentration amplifies both the upside and the disappointment.
How I decide between the two
Both companies ride the same tailwind and show comparable quality. On price, neither offers a real margin of safety today, but Vertiv comes a bit closer than Powell according to my model, while also being the less customer concentrated of the two. Powell appeals through an exceptional return on capital and a size that leaves more room to grow, at the cost of heavier reliance on a handful of contracts. You can check <a href="/analyse/VRT">the full page on Vertiv</a> and <a href="/analyse/POWL">the one on Powell Industries</a>, both built with <a href="/blog/note-10-sur-10-criteres-qualite-action">my 10 quality criteria</a>, or compare other files through <a href="/screener">my screener</a>.
- Vertiv and Powell Industries each score 9 out of 10 quality criteria, both riding AI data center power demand.
- Powell posts a 91.7% return on invested capital, versus 54.4% for Vertiv, one of the highest levels I have measured.
- Both stocks trade above their sector median (34 times free cash flow): Vertiv at 56.1x, Powell at 45.2x.
- Vertiv covers power and cooling worldwide (15 billion dollar backlog); Powell depends on a handful of mega contracts (1.8 billion dollar backlog, including one single deal over 400 million).
- Neither offers a real margin of safety at the current price, but Vertiv comes slightly closer according to my model.
FAQ
What is the difference between Vertiv and Powell Industries?
Vertiv is a large global group supplying both power and cooling for data centers. Powell Industries is a smaller company specialized in medium voltage switchgear, sold through sometimes very large contracts.
Why are both stocks expensive?
The market expects the AI data center rush to continue, which has already filled their order books with billions of dollars. That expectation mechanically inflates the price paid today.
Is Powell Industries riskier than Vertiv?
Its smaller size and reliance on a handful of giant contracts make it more sensitive to swings than a broader customer base like Vertiv's, in both directions.
Which one should you buy?
It depends on your tolerance for contract concentration: Vertiv offers a broader base, Powell a higher return on capital. This is not investment advice, do your own research.
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).