On Jan. 16, President Donald Trump's administration, along with a bipartisan group of governors, launched an initiative targeting PJM Interconnection, the nation's largest power grid. To curb soaring residential utility prices driven by the artificial intelligence (AI) boom, the plan, if enacted, will force tech giants to pay their own way by funding new power-generation projects through emergency auctions.
The move is intended to stabilize costs for consumers but hurts independent power providers like Constellation Energy and Vistra, whose stocks fell on news of price caps. Meanwhile, power infrastructure leader GE Vernova (GEV 1.75%) surged on the news, as it is well positioned to provide gas turbines and grid solutions for the buildout.
GE Vernova is up 77% over the last year, but it could still be a smart investment given this recent news. Here's what investors need to know.
NYSE: GEV
Key Data Points
Surging demand is fueling unprecedented growth for GE Vernova
GE Vernova provides technology and services for the electric grid. Its equipment includes gas, steam, and wind turbines, along with power grid infrastructure, and it generates nearly one-quarter of the world's electricity. Investors have piled into GE Vernova thanks to incredibly strong demand for its gas turbines and grid equipment, driven by the growing use of AI and the data centers that power it.
In the third quarter, gas power orders increased 50% from last year while equipment orders more than doubled. GE Vernova received orders for 20 units of its heavy-duty gas turbines, which are huge machines designed to run continuously and provide baseload power, and 13 orders for its HA turbines, its more advanced high-efficiency units.
What has investors bullish is its growing backlog and capacity commitments. Demand has been so high that customers are paying GE Vernova just to hold a spot in the manufacturing line. It has 33 gigawatts (GW) of firm orders and another 29 GW in slot reservation agreements. And since demand is outpacing supply, it can charge higher prices for future slots.
More energy infrastructure is bullish for GE Vernova
GE Vernova has already enjoyed robust demand, and the recent news from the Trump administration should give it a further boost. The administration is looking to make hyperscalers pay for new power plants through emergency auctions and fund their own energy needs. The goal is to prevent tech companies from buying up all available electricity to maintain stable, affordable prices for households.
Image source: Getty Images.
The auction would support the construction of about $15 billion in new power plants, a White House official told Bloomberg. The plan proposes offering developers 15-year contracts, giving utilities a green light to place huge equipment orders, and tech companies like Microsoft, Alphabet, and Meta Platforms would be responsible for paying over the duration of the contracts, whether they use the power or not.
Analyst Julien Dumoulin-Smith of Jefferies said that GE Vernova is the "clearest winner" from this potential market intervention, since it is a top supplier of the power generation equipment and grid solutions required to meet these capacity needs. Investors should bear in mind that the administration and governors signed a "statement of principles" that isn't legally binding but could serve as a strategic roadmap and be a step toward alleviating pressure on the power grid.
A smart stock to buy for the future of domestic energy
GE Vernova's upside is from natural gas buildout, which should serve as a tailwind for years to come. But another important part of its business is its services business, where it earns recurring revenue from maintaining, upgrading, and repairing its massive fleet of assets. In the third quarter, it earned $1.74 billion from power equipment, while power services generated $3 billion in revenue.
This aspect of its business provides visibility into future earnings over the next decade and beyond. Right now, GE Vernova has a total remaining performance obligation for services of $81.2 billion. Of this backlog, 53% will be recognized within the next five years, and 91% will be recognized over the next 15 years.
With tailwinds from growing turbine purchases and years of service revenue from its massive installed base, GE Vernova is an excellent stock that can benefit from this booming demand for years to come.
