Huge demand for energy as Big Tech companies rush to build out their AI infrastructure has been a tailwind for GE Vernova (GEV), the electrical equipment maker that spun out of the iconic GE earlier this year. .
Shares of the Cambridge, Massachusetts-based company have been hovering around all-time highs, along with the broader S&P 500 industrial ETF (XLI), as investors look to take advantage of the electrification and artificial intelligence theme led by heavyweight of Nvidia (NVDA) artificial intelligence chips.
“[Vernova] seems to be caught up in the broader trade of AI and energy demand,” CFRA analyst Daniel Rich told Yahoo Finance. The company has a Buy rating and a $230 price target on the stock.
Much of Wall Street’s optimism stems from expectations of growth in energy demand stemming from Big Tech’s commitment to making record investments in infrastructure technology.
Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta (META) are expected to spend a combined $200 billion this year on cloud and AI investments, including construction and maintenance of data centers.
Energy demand from infrastructure technologies in the US is expected to more than double by 2030 thanks to the use of AI, according to consulting firm McKinsey & Co.
“Given the amount of energy we’re going to need (if the projections are accurate to power data centers) to power AI applications, Vernova is definitely a winner,” he added.
One Wall Street analyst called the $72 billion company the “supermarket” for the electric power industry, from the natural gas turbines used to generate electricity to power plant maintenance, modernization of electrical networks and the construction of wind turbines.
“This company does it all,” Raymond James CEO Pavel Molchanov told Yahoo Finance in an interview this week.
“Because building electric power infrastructure is an all-of-the-above story, that means all of these solutions will be necessary,” 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 big competitors, such as Siemens Energy, Schneider Electric and ABB, are based abroad.
Vernova expects to deliver between 70 and 80 high-power gas turbines per year in 2026, up from about 55 in recent years. Service to those units is also expected to grow substantially.
“We are seeing increasing demand for power generation, driven by manufacturing growth, industrial electrification, electric vehicles and emerging data center needs,” Vernova CEO Scott Strazik said during the latest company earnings conference call over the summer.
The recent agreement between software giant Microsoft and nuclear energy supplier Constellation Energy (CEG) to restart a reactor at Pennsylvania’s Three Mile Island is a recent example of the growing demand for energy among Big Tech.
The partnership has made Morgan Stanley analysts more optimistic about the prospects for gas-fired plants adjacent to data centers.
“We believe a co-located data center and gas-fired power plant using GEV gas turbine equipment could be announced in 2025,” Morgan Stanley analyst Andrew Percoco wrote in a note last week. last week.
The analyst reiterated an Overweight rating and raised his bullish scenario price target for the stock to $397 from $371.
Vernova shares have risen more than 100% since its spinoff, compared to the S&P 500’s (^GSPC) gain of 21% so far this year. This despite negative headlines on the company’s most contested unit, its wind turbines, following incidents of blades breaking on key offshore projects.
Raymond James’ Molchanov warns that the strong running means there could be little room to run.
“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a little like other AI-related companies that people are familiar with, well, that’s no coincidence,” Molchanov said.
Calling the AI-driven rally “overstretched,” the analyst and his team downgraded the stock from Outperform to Market Perform based on valuation. Much of the enthusiasm for AI is already reflected in Vernova’s share price, he said.
“The bottom line is that we think the stock could use a period of consolidation following its sentiment-driven gains, and we expect to revise our rating when trading becomes less crowded,” he said.
The stock has 19 buy, six hold, and two sell analyst recommendations.
Inés Ferré is a senior business reporter at Yahoo Finance. Follow her on Twitter at @ines_ferre.
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