Vertiv (VRT) Q3 2025: Backlog Jumps 30%, Locking in Multi-Year Data Center Demand
Vertiv’s Q3 revealed a 30% year-over-year backlog surge, cementing visibility into 2026 as AI-driven data center demand accelerates. Operational leverage, pricing power, and a robust services flywheel are driving margin expansion, even as tariffs and EMEA headwinds persist. Management is raising guidance and accelerating capacity and R&D investment, signaling a multi-year growth runway underpinned by industry transformation and technology leadership.
Summary
- Data Center Surge Drives Backlog Visibility: Vertiv’s $9.5B backlog positions the company for sustained growth into 2026.
- Margin Expansion Outpaces Tariff Headwinds: Operational leverage and pricing power offset cost pressures, with incremental margin tracking to long-term targets.
- Accelerated Investment Signals Confidence: Increased R&D and capacity spending aims to keep Vertiv ahead of AI infrastructure demand curves.
Performance Analysis
Vertiv delivered a quarter marked by exceptional order momentum, robust top-line growth, and substantial margin expansion, underpinned by surging demand for data center infrastructure as AI adoption accelerates. Organic sales grew 28% with the Americas leading at 43% growth, APAC up 21%, and EMEA down 4%, reflecting regional divergence tied to power and regulatory constraints in Europe. The company’s adjusted operating profit rose 43%, with margin climbing to 22.3%, reflecting strong operating leverage, positive price-cost dynamics, and productivity gains, even as tariffs created a partial drag.
Vertiv’s free cash flow conversion remained robust at 95%, supporting a net leverage ratio of just 0.5x, which management expects to further reduce by year-end. The order book was a standout highlight: Q3 orders climbed 60% year-over-year and 20% sequentially, driving a book-to-bill ratio of 1.4x and pushing backlog to $9.5B. This backlog, up 30% year-over-year and 12% sequentially, provides strong visibility into 2026 and reflects Vertiv’s early involvement in large-scale strategic projects.
- Americas Margin Expansion: Segment margin expanded 400 basis points on the back of AI-driven demand and effective price-cost management.
- EMEA Underperformance: Sales declined and margins hit a low point, but restructuring is underway to position for a 2026 rebound.
- Service Flywheel Gaining Speed: Services, a high-margin and recurring revenue engine, is poised to accelerate as installed base complexity rises.
Despite EMEA softness and tariff volatility, Vertiv’s diversified regional and product mix, coupled with disciplined cost and capacity management, reinforced its ability to deliver outsized growth and margin expansion in a structurally advantaged market.
Executive Commentary
"We are in the early stages of the digital age, and Vertiv’s position today reflects the years of focus on customer relationships, disciplined investment, operational excellence, and R&D expansion... The scale and speed of what we're seeing in AI and data centers today is just a preview of what's ahead. Data will continue to increase rapidly, and data centers are essential for storage and processing. We are very well positioned to continue to lead through it."
Dave Cody, Executive Chairman
"Our Q3 performance demonstrates the strength of our strategy and execution... Our trailing 12-month organic orders growth of about 21% demonstrates strong momentum with Q3 orders up 60% year-over-year and 20% sequential. The market growth ranges from our November 24 investor day remain valid, though tracking at the higher end. With a color cloud share expanding as the fastest growing segment, the overall market growth is accelerating."
Giordano "Gio" Albertazzi, Chief Executive Officer
Strategic Positioning
1. AI-Driven Demand and Backlog Visibility
Vertiv’s backlog expansion is directly tied to the accelerating buildout of AI-ready data centers, a secular trend that is reshaping the digital infrastructure landscape. Management emphasized that the $9.5B backlog maintains normal phasing (not just long-dated projects), providing multi-quarter revenue visibility and a pipeline that has yet to fully reflect the industry’s largest announced hyperscale projects. This backlog strength underpins confidence in sustained double-digit organic growth through 2026 and beyond.
2. Services as a Competitive Moat
Services, including lifecycle optimization, remote monitoring, and predictive analytics, are increasingly central to Vertiv’s differentiation. With over 4,400 field engineers and a growing installed base of high-density, complex systems, the services business provides recurring, accretive margin and customer stickiness. Management highlighted that while services growth lags equipment during hyper-growth cycles, the flywheel effect is accelerating and will drive higher recurring revenue penetration as the installed base matures.
3. Proactive Capacity and R&D Investment
Vertiv is aggressively expanding capacity, particularly in the Americas, and accelerating R&D spend (20%+ growth planned for 2026), to remain ahead of demand curves and technology shifts. The company’s strategy is to expand existing sites for speed and efficiency, keeping capacity 6-12 months ahead of market needs. Investments in prefabricated solutions (Smart Run), vertical infrastructure, and system-level integration aim to capture value as data center complexity rises. Recent M&A (e.g., Great Lakes, Waylay) further strengthens both product and service breadth.
4. Tariff Mitigation and Supply Chain Resilience
Tariff volatility remains a material input cost, but Vertiv’s mitigation strategies—pricing, supply chain reconfiguration, and manufacturing footprint optimization—are on track to materially offset impacts exiting Q1 2026. Management expects these measures to neutralize tariff headwinds, restoring incremental margin momentum and supporting long-term margin targets.
5. EMEA Restructuring and Regional Rebound
EMEA continues to face power availability and regulatory headwinds, but Vertiv is executing a regional restructuring program to align cost structure and capacity for an anticipated AI infrastructure rebound in the second half of 2026. Management cited encouraging customer pipeline conversations and data sovereignty requirements as catalysts for eventual regional acceleration.
Key Considerations
This quarter highlights Vertiv’s ability to scale operationally while navigating macro and regional volatility. Investors should weigh the following:
Key Considerations:
- Backlog Shape and Revenue Conversion: Backlog phasing remains consistent with historical patterns, supporting near- and mid-term revenue visibility.
- Margin Expansion Amid Investment: Operating leverage and pricing discipline are offsetting cost pressures, with incremental margin tracking to the 30-35% long-term range despite tariff noise.
- Services Growth Lag and Opportunity: The installed base’s rising complexity will drive services growth and margin accretion as equipment growth moderates over time.
- Regional Divergence: Americas and APAC are fueling growth, while EMEA restructuring is critical for capturing the next wave of AI-driven demand.
- Capital Allocation Flexibility: Low net leverage and robust free cash flow provide optionality for further M&A and capacity investments as opportunities arise.
Risks
Tariff volatility, especially new rounds of Section 232 and secondary tariffs, continues to pressure margins and require dynamic mitigation. EMEA’s delayed recovery introduces timing risk to regional growth and margin rebound. Execution risk exists around scaling capacity and services ahead of demand, and competitive intensity in thermal management and power solutions remains high as new technologies emerge. Management’s guidance assumes no further tariff escalation or major supply chain disruption.
Forward Outlook
For Q4 2025, Vertiv guided to:
- Adjusted EPS of $1.26, up 27% year-over-year
- Net sales of $2.85B, with 20% organic growth
- Adjusted operating margin of 22.4%, flat sequentially as tariff and investment headwinds offset higher sales
For full-year 2025, management raised guidance:
- Adjusted EPS to $4.10, up 44% from 2024
- Net sales to $10.2B, reflecting 27% organic growth
- Adjusted operating profit to $2.06B, up 33%
- Free cash flow to $1.5B, with 95% conversion
Management pointed to:
- Continued AI-driven order momentum and pipeline strength
- Tariff mitigation actions expected to materially offset cost headwinds by Q1 2026
- Accelerated investment in R&D and capacity to capture future demand
Takeaways
Vertiv’s Q3 results reinforce its position as a critical enabler of the AI and data center buildout, with backlog strength and operational execution providing both near-term growth and long-term optionality.
- Data Center Cycle Tailwind: Vertiv’s outsized backlog and pipeline visibility support a multi-year growth narrative, with AI adoption driving both equipment and services opportunity.
- Margin and Cash Flow Discipline: Strong incremental margins and free cash flow conversion provide financial flexibility for strategic investments and M&A, even as tariffs and regional headwinds persist.
- Watch for Services Acceleration: As the installed base matures, recurring revenue from services will become a larger profit driver, supporting resilience and valuation.
Conclusion
Vertiv’s Q3 showcased its ability to capitalize on secular digital infrastructure demand, balancing aggressive investment with operational discipline. With a record backlog, robust cash generation, and a proactive approach to tariffs and regional challenges, the company remains well positioned for sustained growth and margin expansion as the AI data center cycle unfolds.
Industry Read-Through
Vertiv’s results offer a clear read-through to the broader digital infrastructure sector: AI-driven data center demand is accelerating, with order pipelines and backlog visibility extending well into 2026. Service and lifecycle management capabilities are becoming critical differentiators, with recurring revenue and higher-margin opportunities lagging but set to accelerate as installed base complexity rises. Tariff and supply chain volatility remain industry-wide challenges, requiring nimble pricing and footprint strategies. Finally, regional divergence—especially EMEA’s delayed recovery—will be a key variable for global players navigating the next phase of digital infrastructure buildout.