Massive demand for energy as big tech rushes to build out their AI infrastructure has been a tailwind for GE Vernova (GEV), the electrical equipment manufacturer spun off from the iconic GE earlier this year.
Shares of the Cambridge, Massachusetts-based company are near all-time highs, as is the broader S&P 500 Industrial ETF (XLII), as investors look to play on the theme of electrification and artificial intelligence led by AI chip heavyweight Nvidia (NVDA).
“(Vernova) appears to be caught up in the broader AI and energy demand trade,” Daniel Rich, an analyst at CFRA, told Yahoo Finance. The company has a Buy rating and a $230 price target on the stock.
Much of Wall Street’s optimism comes from expectations of electricity demand growth stemming from big tech companies’ commitment to investing in record-breaking infrastructure technologies.
Amazon (AMZN), the alphabet (GOOGLE), Microsoft (MSFT), and meta (META) should spending a total of $200 billion this year on investments in cloud and AI, including the construction and maintenance of data centers.
Energy demand from infrastructure technologies in the United States expected to more than double by 2030 thanks to the use of AI, according to consulting firm McKinsey & Co.
“Because of the additional power we will need – if the projections are accurate to power data centers – to power AI applications, Vernova is definitely a winner,” he added.
A Wall Street analyst called the $72 billion company the “supermarket” of the electric power industry – from the natural gas turbines used to generate electricity to the maintenance of power plants , the modernization of electricity networks and the construction of wind turbines.
“This company does everything,” Pavel Molchanov, chief executive of Raymond James, told Yahoo Finance in an interview this week.
“Because building electricity infrastructure is about all of the above, that means all of these solutions will be needed,” he added.
The analyst notes that Vernova’s reach is global, with approximately 30% of its revenue coming from the United States. Some of its main competitors, such as Siemens Energy, Schneider Electric and ABB, are based abroad.
Vernova plans to deliver 70 to 80 heavy-duty gas turbines per year in 2026, up from around 55 in recent years. Maintenance of these units is also expected to grow significantly.
“We are seeing growing demand for power generation, driven by manufacturing growth, industrial electrification, electric vehicles and emerging data center needs,” said Scott Strazik, CEO of Vernova, during the company’s latest earnings conference call over the summer.
The recent deal between software giant Microsoft and nuclear energy provider Constellation Energy (CEG) to restart a reactor at Three Mile Island in Pennsylvania is a recent example of big tech’s growing demand for energy.
The partnership has made Morgan Stanley analysts more optimistic about the prospects for gas-fired power plants adjacent to data centers.
“We believe a data center and gas-fired power plant using GEV’s gas turbine equipment could be announced in 2025,” Andrew Percoco, an analyst at Morgan Stanley, wrote in a note last week.
The analyst reiterated an overweight rating and increased his bull-case scenario price target on the stock from $371 to $397.
Vernova stock is up more than 100% since its split, compared to the S&P 500 (^GSPC) Gain of 21% since the start of the year. This is despite negative headlines surrounding the company’s most troubled unit – its wind turbines – after incidents of the blades break in key offshore projects.
Raymond James’ Molchanov warns that the high momentum means there might be little room to run, however.
“This is an S&P 500 stock that has doubled in the last six months. If this sounds a bit like some other AI-related companies that people know about, well, it’s not a coincidence,” Molchanov said.
Calling the AI-powered rally “overextended,” the analyst and his team lowered the stock’s rating from Outperform to Market Perform based on valuation. Much of the excitement about AI is already priced into Vernova’s stock price, he said.
“Ultimately, we think the stock could benefit from a period of consolidation following its sentiment-driven gains, and we look forward to revisiting our rating if and when trading becomes less crowded,” he said .
The stock has 19 analyst recommendations of Buy, six of Hold and two of Sell.
Ines Ferre is a senior economics reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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