Investors tend to hesitate before buying a stock that has already climbed more than 1,000%, as that kind of gain usually signals the easy money is gone.
However, Mike Khouw just said something noteworthy on a stock like that.
On CNBC’s “Options Action,” the veteran options trader presented a bullish case on Vertiv Holdings Co. (VRT).
He also structured an options trade stretching into early 2027.
Khouw has spent over two decades in the markets as a strategist, portfolio manager, and proprietary trader.
He has appeared on CNBC’s Fast Money and Options Action since 2009, which makes his opinion on risk valuable for investors.
According to Khouw, where the stock’s earnings are heading is the most important thing.
What Vertiv does and why AI spending fuels its growth
Vertiv builds the power and cooling systems that data centers use.
The chips used in data centers often generate a lot of heat and consume large amounts of electricity. Vertiv sells the equipment that manages both.
That makes Vertiv a supplier to the entire AI buildout.
In its second quarter of 2026, Vertiv reported revenue of $3.27 billion, up 24% from a year earlier.
Adjusted operating margins expanded 410 basis points to 22.6%, which is a sign that the company can raise prices while it grows.
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Vertiv’s management also raised its full-year 2026 adjusted earnings guidance to a midpoint of $6.70 per share, up 60% over 2025.
Cheng Xin / Getty Images
Why the stock’s high price tag still looks justified
Vertiv trades at a forward price-to-earnings multiple of roughly 63 times earnings. That means investors expect a strong performance.
One way to check whether that price is justified is the PEG ratio, which compares a stock’s valuation with its earnings growth rate.
Trackers put Vertiv’s PEG below 1, which suggests the stock’s earnings growth matches, or is ahead of its high price tag.
Vertiv also joined the S&P 500 in March 2026.
That addition brought steady buying from index funds, which helped the stock hold up during broader AI selloffs earlier this year.
The risks investors should weigh before buying
Vertiv carries a beta of about 2.07, which means it tends to move roughly twice as much as the overall market.
High-multiple names also react strongly to bad news. A slowdown in AI spending, or a broad market pullback could trigger a steep drop.
Related: BMO sees writing on the wall for Broadcom stock after earnings
Vertiv stock declined on concerns about supply chain delays that pushed some sales into the back half of the year, Yahoo Finance reported. Then it recovered.
How to approach a stock like Vertiv
The demand for data center power and cooling shows no clear sign of slowing.
For investors who want exposure, a measured approach helps:
- Size the position carefully. A high-beta stock can be volatile, so avoid putting too much at once.
- Balance it out. Pairing a growth stock like VRT with steadier sectors can cushion losses during a selloff.
- Watch AI capital spending. If hyperscaler budgets tighten, Vertiv’s growth would face its first real test.
Khouw’s call rests on the idea that Vertiv’s growth has more room ahead, and he says investors shouldn’t be scared by past gains.
Still, a stock priced for strong results often leaves little margin for error.
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