A GE spinoff’s stock is surging as it positions itself as the ‘supermarket’ for AI energy demand

The massive demand for energy as big tech companies race to build out their AI infrastructure has been a tailwind for GE Vernova (GEV), the energy equipment maker that spun off the iconic GE earlier this year.

Shares of the Cambridge, Massachusetts-based company have been hovering near all-time highs, along with the broader S&P 500 Industrial ETF (XLI), as investors look to exploit the electrification and AI theme led by AI chip heavyweight Nvidia. (NVDA).

“(Vernova) appears to be caught up in the broader AI trade and energy demand,” CFRA analyst Daniel Rich told Yahoo Finance. The company has a Buy rating and a price target of $230 per share.

Much of the upside on Wall Street stems from expectations of growth in energy demand stemming from Big Tech companies’ commitment to record investments in infrastructure technology.

Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta (META) are expected to do so. Spending a combined $200 billion this year On cloud and artificial intelligence investments, including building and maintaining data centers.

Alphabet CEO Sundar Pichai speaks at the Google I/O event in Mountain View, California, May 14, 2024. (AP Photo/Jeff Chiu, File) (Associated Press)

Energy demand from infrastructure technologies in the United States It is expected to double by 2030 thanks to the use of artificial intelligence. According to consulting firm McKinsey & Company.

“Because of the amount of additional power we will need – if the forecasts are accurate to power the data centers – to run AI applications, Vernova is definitely a winner,” he added.

One Wall Street analyst called the $72 billion company the “supermarket” of the electric power industry — from natural gas turbines used to generate electricity to servicing power plants, modernizing electrical grids and building wind turbines.

“This company does it all,” Pavel Molchanov, managing director of Raymond James, told Yahoo Finance in an interview this week.

“Since building electrical energy infrastructure is all of the above, it 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 major competitors, such as Siemens Energy, Schneider Electric and ABB, are based abroad.

Vernova expects to deliver 70 to 80 heavy-duty gas turbines annually in 2026, up from about 55 turbines in the past few years. The service of these units is also expected to grow significantly.

“We are seeing increased demand for power generation, driven by growth in manufacturing, industrial electrification, electric vehicles, and emerging data center needs,” Vernova CEO Scott Strazyk said during the company’s last earnings call over the summer.

The recent deal between software giant Microsoft and nuclear power provider Constellation Energy (CEG) to restart a reactor on Pennsylvania’s Three Mile Island is one recent example of the growing demand for energy among Big Tech companies.

The partnership has made Morgan Stanley analysts more optimistic about the prospects for gas power plants adjacent to data centers.

“We believe a joint 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 increased his bullish scenario price target on the stock to $397 from $371.

View of a 7HA gas turbine from General Electric. (Business Wire) (Business Wire)

Vernova stock is up more than 100% since its IPO, compared to the S&P 500’s (^GSPC) gain of 21% year-to-date. This is despite negative headlines at the company’s most challenging unit – its wind turbines – after accidents Breaking codes In major marine projects.

Raymond James’ Molchanov warns that the strong lead means there may not be much room to run.

“It’s a stock in the S&P 500 that has doubled in the last six months,” Molchanov said. “If this sounds a little like some of the other AI-related companies that people know about, well, that’s not a coincidence.”

The analyst and his team described the AI-fueled rally as “extremely extended,” and downgraded the stock from outperform to market perform based on the valuation. A lot of the excitement about AI is already baked into Vernova’s stock price, he said.

“The bottom line is that we believe the stock could use a period of consolidation following its sentiment-driven gains, and we look to revisit our rating if and when trading becomes less crowded,” he said.

The stock has 19 buy recommendations, six hold, and two analyst recommendations to sell.

Ince Ferry is Yahoo Finance’s chief business correspondent. Follow her on Twitter at @ines_ferre.

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