By Tae Kim
Artificial-intelligence data centers will use much more electricity than their traditional counterparts, driving upgrades to electric-power infrastructure in a shift that offers opportunities for investors, according to Bernstein.
"AI will double the rate of US electricity demand growth and total consumption could outstrip supply in the next 2 years," Bernstein analyst Chad Dillard wrote on Sunday. "This challenge creates a once in a generation opportunity for capital goods companies involved in expanding electrical grid capacity."
According to the firm's forecasts, worldwide demand for electricity from AI data centers could grow by 5% a year through 2030. Demand in the U.S. could grow at 7% a year.
Dillard says Quanta Services, an engineering and construction company that works on large electrical power transmission, renewable, and infrastructure projects, is his "top pick." He estimates the coming building of power infrastructure out could add $9 billion in additional total revenue through 2030 and raise earnings by 10% over that period. Revenue in 2023 was $20.9 billion.
The company "is best positioned given it addresses two of the major bottlenecks that will help add additional capacity to the U.S. grid: craft labor and transformer capacity," he wrote.
Dillard said he expects Caterpillar and Cummins, which makes both engines and power-generation equipment, to benefit as well. Each could pull in incremental revenue of more than $5 billion through 2030 as electric-power capacity is expanded. Caterpillar's 2023 revenue was $67.1 billion, while the total at Cummins was $34.1 billion.
The analyst rates Quanta at Outperform with a target of $287 for the price. He has both Caterpillar and Cummins at Market Perform, with respective price targets of $299 and $321.
In afternoon trading Monday, Quanta shares fell 2.2% to $248.35, while Caterpillar stock dropped 1% to $29.83. Cummins stock fell 1.4% to $273.20.
Write to Tae Kim at tae.kim@barrons.com
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July 01, 2024 14:57 ET (18:57 GMT)
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