Forgent Power Solutions (FPS) has strong fundamentals and the "most attractive" end market exposure with about 80% of revenue tied to US data center capital spending and reshoring, but also faces more questions on sustainability as the market debates on how long data center growth will continue, Morgan Stanley said in a note Monday.

"This is because [Forgent] has been outgrowing peers, has a higher bar on forward estimates and is a mid-cap that still needs to prove itself in the public market," the investment firm said.

The company, which designs and manufactures electrical distribution equipment primarily for US data centers and general manufacturing, had the foresight to anticipate a shortage in the electrical equipment market and ramped up production capacity faster than competitors, the investment firm said.

Legacy industry leaders, however, are also planning to boost production capacity over the next two years and have a clearer view into future data center architecture due to their tighter ties with hyperscalers, according to the note.

Morgan Stanley initiated coverage of the stock at equal-weight, with a price target of $38.

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