Data centers may drive the grid into a ‘brick wall.’ These stocks benefit

Companies that manufacture small, quickly deployable natural gas turbines and generators are poised to benefit as surging electricity demand from data centers creates major delays in adding new capacity to the power grid, according to Morgan Stanley. Many power grids in the U.S. are expected to hit a “brick wall” in 2025, when the magnitude of proposed data centers “greatly exceeds” the ability of utility companies and grid operators to connect the projects to electrical supplies, Morgan Stanley analysts told clients in a Monday research note. “We believe this greater appreciation for the current grid connectivity challenges will heighten investor interest in/focus on emerging ‘time to power’ solutions,” the analysts told clients. Texas is exhibit A in showing the magnitude of the challenge. Power projects waiting for connection to the Lone Star state’s grid have surged from 17 gigawatts to about 40 gigawatts in less than two years, according to the analysts. There is also an extensive wait time for diesel-powered, backup generators for new data center projects, according to Morgan Stanley. As a result, smaller natural gas turbines based on technology used in jet engines could surge in popularity, with manufacturers GE Vernova and Siemens Energy benefiting, according to the investment bank. These “aeroderivative” gas turbines can be deployed in a matter of weeks. Companies such as Cummins and Caterpillar are also poised to benefit because they manufacture natural gas-powered generators that provide backup power onsite, according to Morgan Stanley. Siemens Energy stock has nearly doubled this year while GE Vernova, a spinoff that began trading in April, is higher by 18% over the past month. Cummins has gained nearly 19% this year, while Caterpillar is ahead nearly 23%.