The surge in energy demand as Big Tech races to build its 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 are hovering near record highs, along with the broader S&P 500 Industrial ETF (XLI), as investors look to capitalize on the electrification and artificial intelligence theme led by AI chip heavyweight Nvidia ( NDA).
“[Vernova] appears to be caught up in the broader trade in AI and energy demand,” Daniel Rich, analyst at CFRA, told Yahoo Finance. The company has a buy rating and a $230 price target on the stock.
Much of the bullish mood on Wall Street stems from expectations that energy demand will increase as a result of Big Tech’s commitment to 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 building and maintaining data centers.
According to consultancy McKinsey & Co, energy demand from infrastructure technologies in the US is expected to more than double by 2030 thanks to the use of AI.
“Because of how much more power we will need – if forecasts 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 electricity industry — from natural gas turbines used to generate electricity to maintaining power plants, modernizing electrical grids and building wind turbines.
“This company does everything,” Raymond James CEO Pavel Molchanov told Yahoo Finance in an interview this week.
“Because the build-out of the electricity infrastructure is a set of the above stories, it means that all these solutions will be necessary,” he added.
Vernova’s reach is global, with approximately 30% of sales coming from the US. Some of its largest competitors, such as Siemens Energy, Schneider Electric and ABB, are based abroad.
Vernova expects to deliver 70 to 80 heavy-duty gas turbines per year by 2026, compared to about 55 in recent years. The maintenance of these units is also expected to grow significantly.
“We see 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 company’s latest earnings call last summer.
The recent agreement between software giant Microsoft and nuclear power supplier Constellation Energy (CEG) to restart a reactor at Three Mile Island in Pennsylvania 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 of gas-fired power plants in addition to data centers.
“We believe a co-located data center and gas-fired power plant using 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 raised his price target for the stock in the bull case scenario from $371 to $397.
Vernova stock is up more than 100% since its spinoff in March, compared to the S&P 500’s (^GSPC) 21% gain since the start of the year. This is despite negative headlines in the company’s most challenging area – wind turbines – following incidents involving rotor blades breaking off on key offshore projects.
Raymond James’ Molchanov warns that the strong run means there may be little room to run.
“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a bit like some other AI-related companies that people are familiar with, then that’s not a coincidence,” Molchanov said.
The analyst and his team called the AI-powered rally “overextended” and downgraded the stock from Outperform to Market Perform based on the valuation. Much of the enthusiasm about AI is already baked into Vernova’s stock price, he said.
“The bottom line is we think the stock could use a period of consolidation following sentiment-driven gains, and we look forward to revisiting our rating when trading becomes less busy,” 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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