AI is pushing electricity consumption upward. These 5 companies are benefiting from grid modernization
On Monday, September 21, Texas Governor Greg Abbott ordered the environmental regulator TCEQ to stop issuing any permits for data centers until further notice. The state first wants to know how much electricity and water new data centers will consume, and an audit by grid operator ERCOT is not expected to finish until December. ERCOT has not approved connections for data centers with demand from 75 MW since August. Last year, Abbott was still promising that Texas would become a center for AI development.
Key points
On Monday, Texas halted all state permits for data centers until the grid operator completes an audit of their impact. AI construction is now being held back not just by chips, but also by power lines, whose construction takes 5 to 15 years.
GE Vernova has a backlog of 176 billion USD, but grid equipment makes up less than a quarter of it. The market is still paying over 40 times this year's EBITDA for the company, the most of the five.
Quanta Services has a record backlog of 53.4 billion USD, yet the largest transmission projects are still in the design phase. They won't reach the field until the second half of 2027, but the company has the lowest margins of the five.
Eaton is receiving 41% more orders in the Americas, but the segment's operating profit rose only 10%. The promised margin improvement is expected to come roughly two-thirds from price increases.
Prysmian earned as much in a single quarter as it used to earn in a full year, and its transmission cable backlog covers roughly five years of segment revenue. The stock is trading at 15 times EBITDA, one-third the multiple of GE Vernova.
Thus, in addition to chips, AI construction is starting to be slowed by transformers, cables, switchgear, and a shortage of people to install them. GE Vernova $GEV, Quanta Services $PWR, Prysmian $PRY, ABB $ABBNY and Eaton $ETN see this in their orders, and all five raised their full-year guidance after the latest quarter. But the market knows about it, and part of the future orders is already priced into the stocks.
A data center is built in a few years, but the power line to it in a decade
According to the IEA Electricity 2026 report, planning, permitting, and construction of new grid infrastructure takes 5 to 15 years, while a data center is built in 1 to 3 years. Demand can be contracted faster than the grid can serve it, and projects pile up in queues. According to the IEA, over 2,500 GW of new generation, storage, and large loads, including data centers, are waiting in these queues worldwide.
The IEA expects global electricity consumption to grow by an average of 3.6% per year from 2026 to 2030, half as fast again as in the previous decade. Besides data centers, it is driven by electric vehicles, air conditioning, and industry. To keep up, annual grid investment must rise from today's roughly 400 billion USD by about 50%, i.e., by about 200 billion USD more per year by 2030 (calculated from IEA data). The agency itself warns that without expanding supply chains and the workforce, this money cannot be spent.
Some of the queues can be cleared without building new lines. According to the IEA, better use of the existing grid could enable the connection of 1,200 to 1,600 GW of projects currently waiting in the near term. This includes sensors that show in real time how much current a line can carry based on weather, replacing old conductors with higher-capacity ones on existing towers, or contracts in which the customer accepts supply curtailment during grid congestion. Not every dollar invested in grids will end up with transformer and cable manufacturers; some will go to cheaper technologies and software.
Money for grids flows through a chain in which each of the five companies stands in a different place.
Company | Position in the chain | Main products for grids and data centers |
|---|---|---|
GE Vernova | generation and transmission | gas turbines, transformers, HVDC, substations |
Prysmian | transmission | high-voltage and submarine cables, optical fibers |
ABB | distribution | high-voltage switchgear, UPS, data center connections |
Eaton | distribution at the customer | switchgear, UPS, power management in data centers |
Quanta Services | construction | transmission lines, substations, connecting large loads |
Note: Classification based on main products for grids and data centers, not a complete list of segments.
Who pays for the orders also differs. Electric utilities invest according to regulated multi-year plans, so their spending fluctuates little. Data center operators order faster and in larger batches, but their demand depends on how much large technology companies spend on AI. Quanta derives about 70% of revenue from utilities and power producers, and Prysmian relies mainly on orders from transmission system operators. Eaton and ABB have greater exposure to data centers and industry, while GE Vernova serves both groups. The customer mix determines how reliable today's backlog is, and thus what valuation a company deserves.
GE Vernova: the grid is growing fastest, but turbines rule the backlog
GE Vernova is the largest of the five and the most frequently mentioned winner of AI's energy hunger. In the second quarter, it received orders for 24.2 billion USD, organically 88% more than a year ago, and the backlog grew by 13 billion in three months to 176 billion USD. Revenue rose 22% to 11.1 billion USD, organically by 12%.
For the grid thesis, it is essential where the orders came from. The Power segment, mainly gas turbines and their service, gathered 16.7 billion USD, up 134%. Gas equipment under contract or with reserved production slots rose to 116 GW, and the company expects at least 125 GW by year-end. Factories will be able to produce 20 GW per year from the third quarter, and 24 GW in 2028. A large part of turbine demand comes from data centers that want to generate their own electricity because the grid cannot deliver it fast enough. This is only indirectly related to grid modernization in the narrower sense.
The company's grid business, the Electrification segment, received orders for 6.3 billion USD (organically +66%), and its revenue rose organically by 29% to 3.6 billion USD. The segment's EBITDA margin jumped 7 percentage points to 18.4%. Orders from data centers exceeded 5 billion USD in the first half, according to CEO Scott Strazik, more than double the whole of last year. Also helping is transformer maker Prolec GE, the remaining half of which GE Vernova bought in February for about 5.3 billion USD in cash. It is expected to add about 3.1 billion USD of revenue to the segment this year.
But of the 176 billion USD backlog, grid equipment accounts for 40.6 billion, or about 23%. Anyone buying GE Vernova as a bet on transmission and distribution grids is buying mainly a turbine maker with a fast-growing grid division. The third segment, Wind, remains loss-making with an EBITDA margin of −13.6% and orders fell 40%.
The company raised its revenue guidance to 45.5 to 46.5 billion USD and free cash flow to 11.5 to 12.5 billion USD from the original 6.5 to 7.5 billion. It kept adjusted EBITDA margin at 12 to 14%, even though it reached 11.3% in the second quarter. The second half therefore must be more profitable than the first. The midpoints of guidance imply that free cash flow this year will roughly double adjusted EBITDA. For an equipment maker, this usually means high customer advances for a place in the production queue. The cash is real, but it is money for future deliveries. If turbine demand cools, cash flow would turn before revenue does.