Wall Street Starts Downgrading GE Vernova's Rating Amid AI Frenzy

We've learned that US power giant GE Vernova (GEV.US), focused on electricity systems and clean energy, saw its stock price rise slightly by 0.48% as of Monday's closing bell, still near its all-time high. Despite analysts from Guggenheim and Rhodium downgrading their rating following the strong second-quarter earnings report last week, market enthusiasm for GE Vernova remains unabated, with many still betting on the company.

GE Vernova's stock price soared 12% last week and hit a record high of $644.59, with an intraday peak of $651, marking a 200% gain since the beginning of this year and nearly 100% since 2024.

As reported, GE Vernova is an energy technology company spun off from General Electric (GE) in April 2024 and listed on the New York Stock Exchange (NYSE) with a ticker symbol of GEV. The company focuses on power generation systems, wind energy, and electrification solutions, with a mission to "bring power to the world and help decarbonize the grid."

Following General Electric's successful spin-off, GE Vernova has been committed to providing highly flexible gas/nuclar power systems and zero-carbon wind power systems, complemented by digitalized grid solutions, in pursuit of finding the optimal balance between reliability, affordability, and sustainability.

As large data centers featuring AI models expand and build in number, there are predictions that overall electricity consumption in the US will surge at an unprecedented rate. A report from PJM Interconnection shows that peak summer load may increase by 70 gigawatts to reach 220 gigawatts by 2035, surpassing the current installed capacity of 183 gigawatts.

With AI applications like ChatGPT, Claude, and DeepSeek sweeping the globe, global super-large-scale AI data centers require enormous amounts of electricity, making power supply a critical foundation. This is also the origin of the market view that "AI ends with power."

The International Energy Agency (IEA) predicts that global data center electricity demand will grow by more than 100% by 2030 to reach approximately 945 terawatt-hours (TWh), slightly higher than Japan's current total electricity consumption, driven mainly by AI applications. It is expected that the overall electricity demand for AI-focused data centers will quadruple by 2030.

According to Joseph Osha from Guggenheim, GE Vernova's rating was downgraded from "buy" to "neutral," but he emphasized that current valuation remains attractive if investors are willing to look beyond the near-term performance. However, considering the need for a waiting period and significant increases in EBITDA and free cash flow multiples by 2028, Osha believes GEV's risk-return profile has lost its strong appeal.

Osha also noted that from now until 2028, GE Vernova's valuation is reasonable at best. He pointed out that buying the stock at this level means investors must be willing to accept a more attractive valuation based on uncertain future performance and take on the risk of mid-term valuation multiples around 19x for 2028 EBITDA and 35x for next year's EBITDA.

Maheep Mandloi from Rhodium, while upbeat about the company's fundamentals, downgraded his rating from "outperform" to "neutral." He raised his target price from $412 to $670 but emphasized that the valuation has become high and faces downward pressure given the stock's more than 90% gain this year.

Mandloi predicted GE Vernova's 2028 EBITDA to be around $10 billion, higher than other sell-side analysts' average forecast of around $9 billion. His projection shows a higher EBITDA margin and assumes that the company will start a new phase of expansion in the second half of next year.