By Avi Salzman
Investors have lately gone into a frenzy over a mundane piece of electrical equipment that they think will make data centers more efficient. It's called a solid-state transformer, and it's designed to convert power to different voltages.
Transformers are ubiquitous in America. They're the keg-shaped cylinders attached to telephone poles. People drive by them every day without thinking. But in the stock market, transformers are turning heads.
The chance that these century-old devices can get a refresh has caused the stocks of beaten-down solar equipment suppliers Enphase Energy and SolarEdge to double this year. Enphase is up 106% in the past month alone.
"This is a new market that six to nine months ago did not exist for both Enphase and SolarEdge, but it literally takes up 90% of my time when investors want to talk about the sector," said Jeff Osborne, an analyst covering the energy transition at TD Cowen.
Both Enphase and SolarEdge have historically made products called inverters that take solar power generated by panels and transform it into useful voltage for homes and businesses. Their shift into transformers is a new effort but within their skill set.
It will be a major undertaking, however, because the old transformer system has been around almost as long as electricity itself, and is deeply entrenched in the electrical system.
Traditional transformers are made up of steel, coiled copper and mechanical switches, which are used to lower the voltage surging through large power lines so that it's usable by consumers and businesses. Solid-state transformers essentially do the same thing, but in a different form.
The term "solid-state" refers to the fact that the power moves through solid semiconductor materials, instead of the mechanical parts inside the older-style transformers. Solid-state transformers are much lighter than the current version and can manipulate voltage in more sophisticated ways -- almost like switching an analog system to digital.
Nvidia kicked off the race to develop solid-state transformers last year when it published a white paper outlining its blueprint for next-generation data centers. Those warehouses will need several more times more power than the data centers operating today.
The problem with using standard electrical equipment for new data centers is that it's inefficient, and is starting to take up too much space inside the buildings. In some cases, power infrastructure takes up more space in a data center than the servers. The old standard "has become a bottleneck," Nvidia said.
To meet growing power demands without any lag, the new electrical standard for these systems needs to be 800-volt direct current, the company says. To transform the medium-voltage alternating current that the grid serves to most end users into higher-voltage direct current, Nvidia suggests companies use solid-state transformers instead of the old kind. Nvidia's paper lit a fire under the industry.
Companies have been experimenting with solid-state transformer technology for a few years, but their early efforts didn't go very far. They had minimal economic incentives to plow money into development. For instance, SolarEdge started developing a transformer product around six years ago, but put the effort on hold in 2024 because it got too expensive.
Since the Nvidia paper, companies are ramping up their efforts much more intensely. Beyond the solar equipment names, traditional industrial players are also involved.
GE Vernova, for instance, says it's on track to deliver its first transformer this fall to a hyperscaler, which will test it to see if it's up to snuff. If all goes well, orders are likely to commence next year. Schneider Electric and ABB, two other big industrial players, are developing solid-state transformer products too.
Enphase is still working on its design, but is confident it will be able to meet the tech companies' exacting standards. It announced its plans in April along with first quarter earnings and says it thinks the market for its product can grow to 11 gigawatts by 2031, or more than five times the generating capacity of the Hoover Dam.
Osborne says he's still unsure of the potential market size in dollars, but investors appear to be valuing the industry in the multiple billions.
The increase in SolarEdge and Enphase's stock prices in just the past month has added roughly $5 billion to their collective market caps since the transformer trend caught investors' attention. Others have also benefited. Heron Power, a start-up focused on making solid-state transformers for data centers, has been raising money at a fast clip from big name investors.
Heron founder Drew Baglino was a top executive at Tesla before starting the company. It's raised $183 million from investors like Andreessen Horowitz and Breakthrough Energy Ventures, the venture capital arm of Bill Gates' Breakthrough Energy. It has an estimated valuation of $675 million, according to PitchBook.
The rush is on to reconfigure the guts of the electric grid. Investors have already started making their bets.
Write to Avi Salzman at avi.salzman@barrons.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
June 04, 2026 16:14 ET (20:14 GMT)
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