Shares of a GE spin-off are rising as it positions itself as a “supermarket” for AI energy demand

Massive demand for power as Big Tech scrambles to build its AI infrastructure has been a tailwind for GE Vernova ( GEV ), the power equipment maker spun off from flagship GE earlier this year.

Shares of the Cambridge, Mass.-based company were near all-time highs, along with the broader S&P 500 industrials ETF ( XLI ), as investors look to play on electrification and artificial intelligence driven by Nvidia’s AI chip . NVDA).

“(Vernova) seems to be caught up in the broader trade of AI and energy demand,” Daniel Rich, an analyst at CFRA, told Yahoo Finance. The firm has a Buy rating and a $230 price target on the stock.

Much of Wall Street’s optimism stems from expectations of increased energy demand stemming from Big Tech’s commitment to record technology investment in infrastructure.

Amazon ( AMZN ), Alphabet ( GOOGL ), Microsoft ( MSFT ), and Meta ( META ) are expected to spend $200 billion this year on cloud and AI investments, including building and maintaining data centers.

Energy demand from US infrastructure technologies is expected to double by 2030 due to the use of AI, according to consulting firm McKinsey & Co.

“Because of how much 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 called the $72 billion company a “supermarket” for the power industry — from natural gas turbines used to generate electricity to servicing power plants, upgrading power grids and building wind turbines.

“This company does everything,” Raymond James CEO Pavel Molchanov told Yahoo Finance in an interview this week.

“Since building the electricity infrastructure is a story above, that means all these solutions will be needed,” he added.

The analyst notes that Vernova’s reach is global, with about 30% of its revenue coming from the US. Some of its major competitors, such as Siemens Energy, Schneider Electric and ABB, are based abroad.

Vernova expects to deliver 70 to 80 high-power gas turbines per year in 2026, up from about 55 in recent years. A substantial increase in servicing these units is also expected.

“We’re 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 company’s latest summer earnings call .

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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 for gas-fired plants adjacent to data centers.

“We believe a 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.

The analyst reiterated an overweight rating and raised his bull scenario price target for the stock to $397 from $371.

Vernova shares are up more than 100% since the spinoff, compared with the S&P 500’s (^GSPC) year-to-date gain of 21%. That’s despite negative headlines from the company’s most troubled unit – its wind turbines – after blade breakage incidents at key offshore projects.

Raymond James’ Molchanov cautions that a strong advance means there may be little room to run, however.

“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a bit like certain other AI-related companies that people are familiar with, well, that’s not a coincidence,” Molchanov said.

Calling the AI-fueled rally “overpowered,” the analyst and his team downgraded the stock from Outperform to Market Perform based on the rating. Much of the excitement about 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 revising our rating if and when the trade becomes less crowded,” he said.

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

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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