Grid tech companies flourish as investors see value beyond AI boom

While some corners of energy markets have looked pretty frothy of late, one segment has Wall Street betting it won’t get trapped in a bubble: grid tech stocks.

Despite sector-wide gains of some 30% this year, grid tech stocks remain an attractive target, according to Steve Tusa, managing director and senior equity analyst at JPMorgan Chase & Co. Grid tech encompasses a range of hardware makers and software developers as well as utility-scale battery installers. Tusa says investors would be well advised to take advantage of small dips in share prices.

“Any pullback is a buying opportunity at this stage,” Tusa said.

Take Vertiv Holdings Co., which provides microgrid and energy storage solutions to data centers. While the company’s stock price is up around 60% this year and the stock is trading at a “pretty significant premium” to the S&P, the company’s growth “justifies” the premium, he said.

Other grid tech stocks also experienced large gains, mirroring the data center boom. Korean transformer manufacturers Hyosung Heavy Industries Corp. and LS Electric Co. have led those moves, soaring roughly 400% and 230%, respectively, this year. In the U.S., inverter system maker SolarEdge Technologies Inc.’s stock has more than doubled in value, while engineering firm Willdan Group Inc. is trading just off record highs.

“It’s not just about AI,” said Tim Chan, head of sustainability research for Asia Pacific ex-Japan at Morgan Stanley. “Energy demand as a whole is growing.”

At Fidelity International, the view is that there’s now “a very long, structural change,” says Gabriel-Wilson Otto, Fidelity’s head of sustainable investing strategy. That change is being driven by electrification and the growing power needs of Asian economies, not least to gain energy security, he says.

Factors unrelated to AI are “playing a larger role” in driving up energy demand in developing economies, which should support grid tech stocks globally, he said. Upgrades to the aging grid also are badly needed as climate change brews up more extreme weather.

Global grid spending is set to rise by 16% this year to $479 billion, according to a recent BloombergNEF report, and expected to climb to $577 billion by 2027. Data center energy demand also is projected to more than double by the end of the decade, according to the International Energy Agency, with every new power plant needing to be hooked up to the grid.

The Nasdaq OMX Clean Edge Smart Grid Infrastructure Index, a main gauge tracking companies with business exposure to grid infrastructure, has surged about 30% this year, outperforming other major stock indices. The Nasdaq 100, which includes Nvidia Corp., Apple Inc. and Microsoft Corp., is up about 22%. The grid index is trading at 21 times forward earnings, which makes it cheaper than the Nasdaq 100.

To be sure, grid tech stocks also slipped when AI bubble fears gripped markets last month. And not everyone is convinced the sector will sail through a possible AI slowdown.

“Grid as a theme is still a structural winner into 2026,” said Lisa Audet, founder and chief investment officer of Tall Trees Capital Management LP, a U.S.-based boutique hedge fund specializing in the energy transition. But a lot of good news already has been factored into this year’s stock rally, she said. Investors will have to “be very picky around valuation and cyclicality,” she warned.

Many grid upgrades likely will require cooperation with utilities, or at least data from these regulated monopolies, which could slow or block investments. Some states also are increasing scrutiny as customer bills increase, which could hinder the deployment of grid technologies in some areas because they are deemed too risky. The pace of adoption will vary by utility, state, regional grid operator and broader regulatory construct of each area.

Hedge funds reporting to U.S.-based data provider Hazeltree continue to be net bullish on the Nasdaq grid index. Long bets exceeded shorts on 66% of index members at the end of September, up from 59% a month ago, the data showed. Hazeltree tracks positions on 108 of the 113 index constituents, and about 600 funds voluntarily report their positions to the platform.

“Grid infrastructure isn’t primarily an AI story; you could think of it as a ‘chickens are finally coming home to roost’ story,” said Garvin Jabusch, chief investment officer at Green Alpha Advisors. The Nasdaq grid index has been on the rise since 2023, though previous gains were more modest. As the AI boom put grid infrastructure in the spotlight, “the market is finally pricing in what should have been obvious for a long time,” Jabusch said.

That’s particularly true in the U.S. and Europe, where large parts of the grid were built decades ago, when electricity was generated by fossil fuel-fired power plants and flowed from utilities to consumers. Today renewables are on the rise and home batteries paired with rooftop solar can send electricity back to the grid, all of which demand 21st-century upgrades from transformers to transmission lines.

Venture capitalists also see opportunity in the sector. “We didn’t need to bank on data centers being the growth engine,” said Evan Caron, chief investment officer at Montauk Capital, which backs early stage energy and grid startups. He says the data center buildout is “gasoline for a fire that is already burning.”

Alex Darden, who leads infrastructure investment in the Americas for global private-markets firm EQT Partners Inc., said even if there were some hype around AI, the list of tailwinds combined with the fact that grid infrastructure is historically underinvested is creating “significant opportunities.”

And “it’s not just a 2026 opportunity,” Darden said. “This is a multiyear, probably multidecade investment cycle that we’re entering now.”

Liu, Mookerjee and Mal write for Bloomberg.