3 Stocks Set to Win Amid An Unseen Crisis

The U.S. hasn’t been investing in electricity production for decades. And it shows. 

There have been some warning signs such as blackouts and disruptions during periods of stress. 

However, the current grid simply cannot handle the load from the coming surge in electricity demand over the next decade.This is due to the growth in electric vehicles (EV) on the road and AI’s relentless appetite for energy. 

20th century grid vs 21st century technology…

Given that we are relatively early in both trends, the next decade is going to require significant sums of investment in new electricity generation and the modernization of our grid. In today’s newsletter, we are going to dive into this precarious and charged situation and identify 3 companies positioned to capitalize on this transformation. 

A Charged Situation

For decades, utilities in the US have lagged in terms of capital expenditures, failing to even keep up with population growth. This is primarily due to the falling price of natural gas and utilities electing to prioritize short-term cost savings over long-term investments. 

Most spending was simply about maintenance. In fact, annual spending by utilities was only up 12% in real terms between 2002 and 2023, seriously lagging growth in industries that are reliant on cheap and reliable electricity. 

It’s a reflection of an economy that had become dominated by bits and financialization rather than atoms and physical infrastructure. Utilities were incentivized to disregard capital-intensive projects and favor alternatives like energy efficiency or distributed generation in the pursuit of maximizing shareholder returns. 

The net result is an aging and overloaded electrical grid that is in dire need of renewal and upgrades. This stagnant supply is a major threat especially considering that demand is projected to grow exponentially over the next couple of decades. Meanwhile, adding new supply requires massive amounts of capital and takes years to actually come online. 

Utilities were able to not feel the consequences of this short-term approach, because demand growth was relatively muted. Now, this is changing. The rise of electric vehicles (EVs) and the AI boom is a game-changer. Last year, electricity demand increased by 3%, and it’s forecast to grow by 25% over the next 5 years. 

It’s increasingly clear that the lack of investment in electricity generation will be the major constraint for the growth in these technologies. Over the next 5 years, $1.4 trillion will be spent to meet this demand which is equivalent to the last 12 years combined. In the interim, it’s likely that we will see rising electricity prices and less reliability due to our 20-th century electricity grid failing to meet the needs of 21st century technologies. 

3 Winners

This is shaping up to be one of the defining challenges for the country and utilities. 

Given current forecasts about the growth in EVs and AI, electricity is quickly going to be a constraint. It’s similar to the 5G upgrades over the past decade which totaled $100 billion and was a prerequisite for today’s world where data is always available and abundant. 

But for investors, it’s shaping up to be a great opportunity. Vertiv (NYSE: VRT), Ero Copper (NYSE: ERO) and GE Vernova (NYSE: GEV), united by their critical roles in powering and upgrading America’s electrical infrastructure, are primed to thrive in this high-stakes race.

1. Vertiv Holdings (VRT)

VRT is a leading provider of cooling solutions for data centers and communications networks. Its customers include the top AI hyperscalers and mobile operators. In the past year, the company has enjoyed strong gains as capital expenditures related to AI continue to increase as well as use of AI. 

Current forecasts are for total investment in AI to exceed $7 trillion over the next decade which will benefit companies like VRT. Due to these trends, it’s estimated that VRT’s earnings will increase by 58% annually over the next 3 years.

The Zen Ratings are bullish on VRT as it is rated a Strong Buy (A). A-rated stocks have delivered an average annual performance of 32.5% which is significantly better than the S&P 500’s average 10.8% gain. 

Wall Street analysts are also bullish on the stock as 6 analysts rate it a Strong Buy, 4 rate it a Buy, 1 rates it a Hold, and there are 0 Sell or Strong Sell ratings. VRT has exceeded analysts’ earnings estimates for 9 straight quarters due to a stronger than expected order book. 

2. GE Verona (GEV)

GE Vernova was spun off from General Electric’s energy businesses last year. It’s a leading provider of energy equipment and services and operates through three segments: Power, Wind, and Electrification. 

GEV boasts that its technology is involved in around 25% of global electricity generation. Due to this, it’s well-positioned to be a major beneficiary of increased spending on upgrading the electric grid for enhanced stability, integration of renewables, and to meet the energy-intensive needs of AI.

In its next earnings report, analysts expect a 7% increase in revenue and a 131% jump in earnings per share. According to the Zen Ratings, GEV has an overall grade of Buy (B). B-rated stocks have an average annual performance of 19.9% which handily beats the S&P 500’s average 10.5% gain. 

GEV also stands out in terms of its Component Grades with an A for Momentum and Safety. This is an unusual combination and highlights GEV’s outperformance on multiple timeframes along with operational reliability and steady margin expansion. 

3. ERO Copper (ERO)

Ero Copper was founded in 2016 and is a low-cost copper producer with primary operations in Brazil. Last year, it produced 43,400 tons of copper, and it expects more than 100,000 tons of production in 2025 due to production from a new mine. 

Copper is an essential part of the electrification story, and prices should rise along with increasing spending on the electric grid as it’s essential for wiring, renewable energy systems, and data center infrastructure. Globally, annual copper production is forecast to decline over the next decade due to a lack of capital expenditures in new production over the past decade. Meanwhile, demand is forecast to continue rising due to grid upgrades and electrification trends. Thus, it’s likely that copper prices continue moving higher, until there is a material response to boost new production. 

In terms of the Zen Ratings, ERO has an overall Buy (B) rating. Out of our universe of more than 4,500 stocks, it ranks in the top 3% for Growth. This is consistent with analysts forecasting the company to more than double earnings this year. ERO’s growth is driven by rising copper prices in addition to new production from 2 mines. Despite this growth, valuations remain compelling with a forward P/E of 5. 

Conclusion

The chronic underinvestment in U.S. electricity infrastructure has left the grid unprepared for the surging demand driven by electric vehicles and AI. For investors, it’s a significant opportunity to bet on the companies that provide products and services for its modernization.

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