(Bloomberg) — Lately, certain areas of the energy market have seemed a bit overly optimistic, yet investors on Wall Street are confident that grid technology stocks won’t be part of any bubble.
Steve Tusa, a managing director and senior equity analyst at JPMorgan Chase & Co., believes grid technology stocks are still appealing, especially given the sector’s impressive 30% surge this year. This category includes various hardware makers, software developers, and large-scale battery installers. Tusa noted that investors might find value in the recent dip in stock prices.
“Right now, any pullback could be a chance to buy,” Tusa commented.
Take for instance, Vertiv Holdings Co.—they offer microgrid and energy storage options for data centers. Their stock has seen an increase of around 60% this year, and while it trades at a “significant premium” compared to the S&P, Tusa argues that their growth justifies this premium.
Other grid technology stocks are also witnessing substantial growth, mainly due to the booming demand for data centers. For example, South Korean transformer manufacturers such as Hyosung Heavy Industries and LS Electric have skyrocketed by approximately 400% and 230%, respectively. In the U.S., shares of inverter system provider SolarEdge Technologies have more than doubled, and the engineering firm Wildan Group is just shy of its all-time high.
“This isn’t solely an AI situation,” Tim Chan, who leads sustainability research for Asia Pacific (excluding Japan) at Morgan Stanley, said. “There’s an overall increase in energy demand.”
Gabriel Wilson-Otto, head of sustainable investment strategy at Fidelity International, mentions that a “very long-term structural shift” is taking place, driven by electrification and the rising need for electricity in Asian markets, particularly concerning energy security.
He emphasized that non-AI elements are increasingly influencing energy demand in developing nations, which is beneficial for grid technology stocks globally. As climate change becomes more pronounced, updating older power grids has become critical.
According to a recent BloombergNEF report, global spending on grid infrastructure is expected to rise by 16% this year, hitting $479 billion, and potentially reaching $577 billion by 2027. The demand for energy in data centers is also anticipated to double by the decade’s end, with new power plants requiring connections to the grid, as stated by the International Energy Agency.
The Nasdaq OMX Clean Edge Smart Grid Infrastructure Index, which tracks companies involved in grid infrastructure, has increased about 30% this year—outpacing other major stock indices. In comparison, the Nasdaq 100, including giants like Nvidia, Apple, and Microsoft, rose about 22% during the same period. Notably, the Grid Index trades at a mere 21 times forward earnings, which is a discount compared to the Nasdaq 100.
There was a dip in grid technology stocks last month when concerns arose about a potential AI bubble. Still, not everyone is convinced that this sector can weather any downturn related to AI.
Lisa Ode, founder and chief investment officer at Tall Trees Capital Management LP, noted, “The grid theme is still a structural winner for 2026.” However, she cautioned that much of the positive news may already be factored into this year’s stock price increase, advising investors to be “very cautious about valuations and cyclicality.”
Some grid improvements might necessitate partnerships with utilities or at least insights from these regulated entities, which can delay or hinder investment. As customer bills continue to rise, some states have implemented stricter oversight, and regions may find the risks too significant to adopt grid technologies. The speed of implementation will likely differ depending on the utility, state, regional transmission operator, and the regulatory frameworks in place.
Data from Hazeltree, a U.S.-based data provider, indicates that hedge funds remain generally bullish on the Nasdaq Grid Index. At the end of September, long positions outnumbered short ones for 66% of the index’s members, up from 59% the previous month. Hazeltree tracks the positions of around 108 out of 113 index constituents, with approximately 600 funds voluntarily disclosing their positions to the platform.
“Grid infrastructure isn’t mainly an AI narrative. It can also be seen as the chickens coming home to roost,” noted Garvin Jabusch, chief investment officer at Green Alpha Advisors. The Nasdaq Grid Index has risen for three consecutive years since 2023, although past gains were more modest. As the AI boom emphasizes grid infrastructure, “the market seems to be recognizing what has long been evident,” Jabusch suggested.
This trend is particularly noticeable in the U.S. and Europe, where power grids were established decades ago when most electricity came from fossil fuel plants. With renewables gaining traction, the necessity for modern upgrades, from transformers to power lines—capable of integrating home battery storage and solar energy back to the grid—has become starkly apparent.
Venture capitalists are also keen on this area. “We didn’t need to bank on data centers as the only growth engine,” said Evan Caron, chief investment officer at Montauk Capital, which invests in early-stage energy and grid startups. The inclusion of data centers “is like adding gasoline to an already blazing fire,” he remarked.
According to Alex Darden, head of Americas infrastructure investment at EQT Partners, even amid all the AI excitement, numerous favorable factors combined with a history of underinvestment in grid infrastructure present a “significant opportunity.”
“And this isn’t merely a 2026 opportunity,” Darden pointed out. “We’re currently engaged in an investment cycle that spans years, potentially decades.”
