Al Root
The buildout of AI data centers has been a boon for utilities, makers of power-generation equipment, and hosts of industrial companies supplying electrical components.
That isn't likely to change in 2026. Investors, however, might need to refine their portfolios a little to keep getting the jolt from artificial intelligence.
"Heading into 2026, we expect baseload power sources to remain top of mind for investors, though we expect the thematic trade to become more nuanced by individual stock fundamentals and valuation, rather than simply by exposure," wrote J.P. Morgan analyst Mark Strouse on Monday.
His top picks are renewable-power generator Brookfield Renewable Partners, solar technology company Nextpower, and GE Vernova, a provider of power-generation technology.
He expects Brookfield to continue to buy renewable projects. Orders are picking up at GE Vernova, and Nextpower "is well positioned to gain market share within the global utility-scale market," said Strouse. "We also believe that Nextpower's recently issued long-term financial targets, based on third-party market forecasts, should prove overly conservative."
In November, Nextpower laid out plans to increase earnings before interest, taxes, depreciation, and amortization, or Ebitda, to about $1.2 billion, from about $790 million expected for fiscal 2026.
Along with those three, Strouse upgraded shares of electrical infrastructure provider Quanta Services and backup power provider Generac to Buy from Hold.
His Quanta price target went to $515 from $457 a share. "We expect Quanta Services to benefit over time from large projects that are only partially included in current backlog, providing visibility into above-trend backlog conversion as well as future backlog additions as projects progress," the analyst said.
Quanta stock was up 1.8% at $469 in premarket trading, while the S&P 500 were up 0.1% and Dow Jones Industrial Average futures were flat. Generac stock was up 2.2% at $165.93.
Strouse left his Generac price target unchanged at $200 a share. Coming into Monday trading, Generac stock was up only 5% year to date and down 9% over the past 12 months.
"The stock has underperformed since Caterpillar's.... announced capacity expansion that would directly compete with Generac's nascent data center solution," wrote the analyst. "While CAT's expansion could potentially lead to lower pricing power for the overall data center large engine market, we continue to believe that Generac is positioned to be a participant in this market with potential catalysts ahead being signed contracts with data center customers."
With the upgrade, 54% of analysts covering Generac stock rate the shares at Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $208 per share.
Now, 61% of analysts covering Quanta stock rate shares Buy. The average analyst price target is about $486.
Ratings didn't change for any of Strouse's top picks. The Buy rating ratios for Brookfield, Nextpower, and GE Vernova are 64%, 69%, and 68%, respectively.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 08, 2025 08:52 ET (13:52 GMT)
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