As businesses deepen their use of artificial intelligence (AI), an increasing number of companies are beginning to see quantifiable returns from their AI investments. However, Morgan Stanley believes that the insufficient supply of computing power is becoming a critical bottleneck limiting the further expansion of the AI industry. Constraints related to electricity, labor, and politics may cause this issue to persist for several years. Michelle Weaver of Morgan Stanley stated that corporate applications of AI are increasingly yielding tangible results, but the limited supply of computing power remains a barrier to growth. "Our supply is very inadequate. We see computing power becoming a constrained resource," said Weaver, a US thematic research strategist at Morgan Stanley. "Power bottlenecks, political bottlenecks, labor bottlenecks—these factors will restrain supply for years to come."
According to informed sources, the demand for highly reliable backup power in AI data centers (AIDC) has significantly increased. There is a clear trend toward product upgrades involving high power, high voltage, and intelligent parallel operation. Data centers have become the most important incremental driver for the diesel engine and generator set industry. A research report from China International Capital Corporation (CICC) indicates that the power equipment sector is expected to show stable and upward performance in 2026, urging investors to focus on structural opportunities. In the traditional power grid sector, the "15th Five-Year Plan" for a new energy system clarifies the positioning of the grid as "adaptable to a high proportion of new energy." Coupled with the release of the State Grid's "15th Five-Year" investment plan, long-term investment in the power grid is promising. Additionally, the global acceleration of AIDC infrastructure construction is fueling strong demand for related power equipment. Chinese power equipment companies are expected to secure orders by leveraging advantages such as short delivery cycles, cost-effectiveness, and robust after-sales service. CICC still believes that the early signs of a global power cycle are emerging. The development of a new-type power system is a long-term, continuous process, with prosperity potentially sustainable until 2030. The orders, revenue, and profits of major listed companies remain on a solid upward trajectory. After recent adjustments, current valuations have entered a historically undervalued range, making the sector attractive for long-term investment.
Key Hong Kong-listed stocks related to power equipment include:
DONGFANG ELEC (01072): Since 2009, the company has taken the lead in China in developing a heavy-duty F-class 50MW gas turbine (G50) with fully independent intellectual property rights, achieving 100% domestic manufacturing of high-temperature components. The first G50 unit was successfully ignited at the China Huadian Qingyuan Overseas Chinese Industrial Park project site in Guangdong at the end of 2022, and it officially entered commercial operation in March 2023. In 2025, the company achieved a breakthrough in overseas orders.
Harbin Electric (01133): Its independently developed 16-megawatt gas turbine is expected to complete testing in the second half of 2026, after which it can be commercialized.
Weichai Power (02338): CITIC Securities points out that considering Weichai Power's core growth engine has shifted from heavy-duty truck powertrains and vehicles to the high-growth AIDC power generation business, its related profit share is expected to rise from 20% in 2026-2028 to over 40%, contributing more than 70% of performance growth. The firm is optimistic about Weichai's valuation potential compared to overseas leaders, expecting a Davis Double Play effect.
WASION HOLDINGS (03393): Its subsidiary recently won a contract to supply reclosers for Brazil's Equatorial Energia. Institutions expect strong earnings growth in the distribution business and overseas smart meter sales from 2026 to 2027.
TSUGAMI CHINA (01651): In 2025, the company began receiving a significant number of orders for AI liquid cooling connectors. In 2026, it started taking substantial orders for ROSA and TOSA components used in AI optical modules. As the precision requirements for optical modules increase, the company's sliding-headstock lathes are becoming more advantageous, allowing it to gain more market share in this field. The liquid cooling connectors are expected to become more complex, driving higher demand for machine tools. AIDC is set to become a sustained growth driver for the company. Daiwa Securities published a report stating that Tsugami China is one of the key machine tool beneficiaries of AI infrastructure investment. Demand for AI liquid cooling quick-disconnect couplings remains strong. Management indicated that orders for the fiscal year 2026 have reached approximately 1,000 units, with expectations for a doubling in fiscal year 2027, primarily driven by deployments related to Nvidia's GB300.
Impro Precision (01286): The company is transforming from a traditional casting company into a precision engineering platform for US AI data centers. The launch of its high-horsepower engine and Mexico plant will serve as catalysts for valuation re-rating. The group forecasts a more significant sales growth in the second half of 2026 and has raised its full-year sales growth forecast to 20%-25%, aiming to double revenue to over HK$10 billion by 2029 or 2030 from the 2025 level.
Chongqing Machinery (02722): The company issued a positive profit alert, expecting a net profit attributable to shareholders for the six months ending June 30, 2026, to increase by approximately 30% compared to the same period in 2025. This growth is mainly attributed to the group's continuous improvement in lean management, profitability improvements in the intelligent machine tool business, increased scale and profitability in the wind turbine blade business, and higher investment income from the high-horsepower engine and ultra-high voltage transmission business. Huayuan Securities believes that as the company holds a 50% stake in Chongqing Cummins and a 38% stake in Chongqing Hitachi Energy by the end of 2025, it is well-positioned to benefit from AI data center construction and the global energy structure transition. Additionally, Chongqing Machinery Group's "15th Five-Year Plan" establishes a "12358" strategic framework, targeting an operating revenue of RMB 50 billion by 2030. The firm states that the company's profitability is expected to enter a release phase.
China United Venture (00264): On July 26 and August 3, the company announced that its subsidiaries had signed two prefabricated AIDC module procurement contracts with an independent overseas customer, Brightray Veridian. The two orders are valued at US$24.98 million and US$68 million, respectively, totaling US$93 million (approximately HK$731 million). The project delivery location is the AIDC project site in Johor Bahru, Malaysia.
Comments