Key Points
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AI data centers are being built faster than the power utility industry can add electricity-generating capacity.
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That’s why the artificial intelligence industry is taking power-production matters into its own hands.
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This demand for natural gas power turbines will exceed the supply of them well into the foreseeable future.
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Just a few years ago, most people may not have even known what a natural gas power turbine was, or what they’re used for. Today, investors keeping tabs on the artificial intelligence (AI) revolution are almost certainly familiar with them, and the AI industry’s lack of them.
See, gas turbines generate onsite electricity that AI data centers need, but utility companies aren’t in a position to deliver. Anywhere from the size of a delivery truck to a train car, these massive machines can put out watts to power a small city, or — obviously — an AI data center. They just need a supply of natural gas, which is now proving easier to get than an institutional-scale hookup to a power grid.
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And the AI industry is most definitely embracing the solution. Although the majority of them aren’t yet operational, BloombergNEF reports that there are nearly 100 data centers with, or building, on-site natural gas turbine power infrastructure. Although they come with a higher upfront cost, owners/operators like their long-term cost-effectiveness and the self-sufficiency they enable. To this end, PwC expect the AI industry’s consumption of natural gas to more than quintuple by 2035, with power turbines accounting for much of this growth.
Image source: Getty Images.
There’s just one not-so-small problem with the idea. That is, with demand greatly exceeding supply, prices of natural gas power turbines are soaring. As energy industry consulting and research firm Wood Mackenzie noted earlier this year, by the end of next year, the per-kilowatt cost of gas-powered turbines could be 195% higher than where it was in 2019.
What’s frustrating for AI data center owners, however, is a boon for the few companies capable of making such heavy equipment. To this end, here’s a closer look at the publicly traded companies already cashing in on the craze and likely to continue doing so for at least several more years.
Stocks being driven higher by insatiable demand for natural gas power turbines
It’s not necessarily a complete list. It is, however, a look at the names leading the business, as well as at the pure-play natural gas turbine companies most accessible to investors.
GE Vernova
If there’s one single-best way to capitalize on the swell of demand for gas turbines, it’s GE Vernova (NYSE: GEV). Although GE Vernova makes everything from wind turbines to power grid solutions to hydropower equipment, natural gas power turbines for AI data centers are its leading profit center right now and for the foreseeable future. Last quarter’s organic revenue growth of 12% was led by 14% growth in the power division, which includes gas turbines.
That’s not huge, but it’s also not the whole story. This unit’s total orders jumped 134% year over year in Q2, beefing up its backlog by $13 billion, to $176 billion. For perspective, that’s more than four years’ worth of revenue at the company’s current level of annualized sales, and the backlog is sure to continue growing in the meantime.
Siemens Energy
While North America’s natural gas turbine needs are largely met by GE Vernova, Germany’s heavy equipment maker Siemens Energy (OTC: SMERY) (OTC: SMEGF) is its counterpart in Europe. Last quarter’s revenue was up 18.5% year over year largely thanks to AI data center demand.
Yet, this still only scratches the surface of the opportunity. While it delivered 6 gigawatts’ worth of gas-powered turbines during the three-month stretch, it received 15 gigawatts’ worth of new orders, growing its backlog to 69 gigawatts’ worth of gas-power equipment.
Mitsubishi Heavy Industries
Finally, add Japan’s Mitsubishi Heavy Industries (OTC: MHVYF) to the list of major, investment-worthy names in the natural gas power turbine industry.
Like Siemens and GE Vernova, it’s doing well enough right now, reporting revenue growth of 13.3% in its most recently completed quarter, with comparable growth in the cards for the remainder of the year. Also, like Siemens and GE Vernova, it’s still adding capacity to meet demand it can’t yet meet.
Don’t sweat Mitsubishi’s or Siemens’ OTC listings either, by the way. These aren’t micro caps or penny stocks that are frequently listed as OTC stocks. These are major companies with conventional exchange listings in their home countries. They’ve simply chosen to not pursue a conventional U.S. exchange listing due to the unjustified hassle or cost of doing so.
Honorable mentions
These aren’t the only names in the gas turbine business that are experiencing strong, AI-driven growth at this time, nor are they necessarily the biggest. They’re just the biggest direct beneficiaries of soaring turbine prices. Two other outfits are also worth a look, even if natural gas power turbines aren’t a major profit center for either right now.
Caterpillar
You likely know Caterpillar (NYSE: CAT) best as a maker of bulldozers and other heavy construction equipment, but you may also be aware that its conventional, diesel-powered generators are also now in use as a source of primary or secondary power for a few AI data centers. Perhaps most notably, Microsoft‘s planned Monarch Compute Campus in West Virginia will initially depend on Caterpillar’s G3500-series of natural gas generators for electricity. This is mostly just a stop-gap though. This facility will ultimately be powered by two gigawatts’ worth of Caterpillar-made — through its wholly owned subsidiary Solar Turbines — natural gas turbines, underscoring that the company is capable of competing outside of the construction arena.
To this end, a large share of last year’s 24% year-over-year sales growth was driven by data center demand.
Woodward
Finally, add Woodward (NASDAQ: WWD) to your list of stocks in the natural gas power turbine business that are benefiting from the rising price of this machinery. It could have earned a spot on the primary list alongside GE Vernova, Siemens, or Mitsubishi Heavy Industries, but the company’s reporting doesn’t offer as much transparency as most investors would like. All we know for sure is that Woodward serves the on-site power production market.
Nevertheless, investors willing to keep it on their watch list for a while or dig deeper into the company’s inner workings might eventually access some more specific information. In the meantime, GE Vernova arguably remains your best bet, on the notion that its rising price won’t actually crimp the artificial intelligence industry’s growing demand for natural-gas power turbines anytime soon.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar, GE Vernova, and Microsoft. The Motley Fool recommends Siemens Energy Ag. The Motley Fool has a disclosure policy.
