How GE spinoff Vernova rode the AI trade to the top of the stock market

General Electric could not have chosen a better moment to launch its energy businesses as an independent company, CEO Scott Strazik said one month before GE Vernova debuted on the New York Stock Exchange. “Now that’s a big statement,” Strazik acknowledged at GE Vernova’s first investors’ day in March 2024. But he pointed to forecasts that electricity demand from artificial intelligence data centers would surge through the end of the decade. The CEO said Vernova was “purpose built” for the moment. Investors at that time were just starting understand the implications of AI for energy consumption. But Strazik’s view may be more commonly held now, as Vernova’s performance suggests. The stock has more than quadrupled in value since it started trading on April 2, 2024. It is the second best performer in the S & P 500 in the year and a half since its spinoff from GE, behind the high-flying Palantir . Year to date, Vernova is up about 90%, making it the sixth best performing stock. Despite this run, the majority of Wall Street analysts still rate the stock a buy and see the potential, on average, for shares to climb to $686.68, which is about 10% above were it closed Friday. By most accounts, the U.S. is still in the early stages of the AI data center buildout, and GE Vernova is well positioned to benefit from the trend, according to analysts. Vernova has deep pockets and expects robust revenue growth. The company has doubled its cash balance to $8 billion from the spinoff through the end of last year and sees a path to $14 billion by 2028. It’s targeting $45 billion in revenue that year, a 30% increase over the $35 billion generated in 2024. Tech companies are increasing capital spending, but the biggest constraint they face is electricity, Goldman Sachs analysts said Monday. There is no better way to invest in the theme than Vernova due to robust demand for its gas turbines, grid equipment and future opportunities in nuclear, the analysts told clients in a note. Morgan Stanley is also bullish. The firm met with Strazik on Sept. 11, as the executive was presenting at a conference hosted by the bank. Analyst David Acaro told clients in a note Monday that he “came away with increased confidence in the long-term growth outlook.” Power demand is the strongest it has been since the end of the Second World War, Strazik said during his presentation. “Not only is the world going to need more energy, but the proportion of that energy that’s going to be coming from electrical power is going to grow,” Strazik said . Gas business booming Vernova emerged from GE CEO Larry Culp’s plan to rescue the ailing industrial conglomerate by splitting it into three independent companies focused on energy, aerospace and health care. Vernova’s stock performance has blown past its sister spinoffs GE Aerospace and GE Healthcare Technologies . The company brings GE’s gas, nuclear and electric equipment businesses under one roof at a time when those segments are seeing strong demand from data centers. Vernova’s wind turbine business, however, is struggling in the face of tough economics and the Trump administration’s war on renewables. Vernova’s core gas power business is booming as utilities move to install more power generation to meet rising electricity demand. Its gas turbines are sold out through 2028 with a backlog that stood at 55 gigawatts in June. Orders nearly tripled in the second quarter compared to the same period in 2024. Vernova aims to ramp up manufacturing to produce up to 80 heavy duty gas turbines annually starting in the second half of 2026, up from 48 turbines in 2024. Turbine prices continue to increase on this strong demand, Strazik said on the company’s July earnings call. Vernova has not disclosed prices, but NextEra Energy CEO John Ketchum said in March that the cost of building new gas plants has tripled to $2,400 per kilowatt from $785 per kilowatt in 2022. “Some of the price increases that follow the demand shock we are experiencing are hard to internalize,” said Melius Research analyst Rob Wertheimer, who upgraded Vernova to buy on Monday with a $740 price target, suggesting 18% upside from current levels. About 70% of the revenue in Vernova’s gas power business comes from servicing an installed base of more than 7,000 turbines worldwide. Strazik expects revenue from those services to grow as utilities upgrade existing turbines to generate more power more to meet demand. “For the first time in a decade, our customers are investing into the existing install base to a larger extent,” Strazik said at a JPMorgan conference in June 2024. Vernova’s backlog for gas power services stood at $56 billion at the end of 2024, Chief Financial Officer Kenneth Parks told investors in a December update . Demand for electric…