The massive demand for energy as Big Tech races to build its AI infrastructure has been a tailwind for GE Vernova (GEV), the power equipment maker that spun out of iconic GE earlier this year.
Shares of the Cambridge, Mass.-based company have been hovering near all-time highs, along with the broader S&P 500 Industrial ETF (XLI), as investors look to play off the electrification and artificial intelligence theme led by AI chip heavyweight Nvidia (NVDA).
“[Vernova] seems to be caught up in the broader trade of AI and power demand,” Daniel Rich, analyst at CFRA, told Yahoo Finance. The firm has a Buy rating and a price target of $230 on the stock.
Much of Wall Street’s bullishness stems from expectations of power demand growth stemming from Big Tech’s commitment to record infrastructure technology investments.
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 building and maintaining data centers.
Power demand from infrastructure technologies in the US is expected to more than double by 2030 thanks to use of AI, according to consulting firm McKinsey & Co.
“Because of how much more power 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 dubbed the $72 billion company the “supermarket” for the electric power industry — from natural gas turbines used to generate electricity to servicing of power plants, modernizing electric grids, and building wind turbines.
“This company does everything,” Raymond James managing director Pavel Molchanov told Yahoo Finance in an interview this week.
“Because the buildout of electric power infrastructure is an all-of-the-above story, that means all of these solutions are going to be needed,” he added.
Vernova’s reach is global, with roughly 30% of its revenue stemming from the US. Some of its biggest competitors, like Siemens Energy, Schneider Electric, and ABB, are based abroad.
Vernova expects to deliver 70 to 80 heavy-duty gas turbines per year in 2026, up from roughly 55 for the last few years. Servicing those units is also expected to grow substantially.
“We’re seeing increasing demand for power generation, driven by manufacturing growth, industrial electrification, EVs, and emerging data center needs,” Vernova CEO Scott Strazik said during the company’s latest earnings call over the summer.
The recent deal between software giant Microsoft and nuclear power provider Constellation Energy (CEG) to restart a reactor at Pennsylvania’s Three Mile Island is one recent example of the growing energy demand among Big Tech.
The partnership has made Morgan Stanley analysts more bullish on the prospects of gas-powered plants adjacent to data centers.
“We believe a co-located data center and gas-fired power plant utilizing GEV’s gas-turbine equipment could be announced in 2025,” Morgan Stanley analyst Andrew Percoco wrote in a note last week.
The analyst reiterated an Overweight rating and increased his bull case scenario price target on the stock to $397 from $371.
Vernova stock is up more than 100% since its March spinoff, compared to the S&P 500’s (^GSPC) 21% year-to-date gain. That’s despite negative headlines in the company’s most challenged unit — its wind turbines — after incidents of blades breaking off in key offshore projects.
Molchanov from Raymond James cautions the strong run-up means there could be little room to run, though.
“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a little bit like certain other AI-related companies that people are familiar with, well, that’s not a coincidence,” said Molchanov.
Calling the AI-fueled rally “overstretched,” the analyst and his team downgraded the stock from Outperform to Market Perform based on valuation. Much of the enthusiasm over AI is already baked into Vernova’s share price, he said.
“The bottom line is that we think the stock could use a period of consolidation after its sentiment-driven gains, and we look forward to revisiting our rating if and when the trade becomes less crowded,” he said.
The stock has 19 Buy, six Hold, and two Sell analyst recommendations.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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