Replace gas turbines, is the top choice for AI-powered electricity gas generator sets?

The demand for power equipment in AI data centers is reshaping the entire landscape of the power generation equipment market. According to HSBC’s latest research report, natural gas generator sets are rapidly replacing gas turbines, becoming the preferred transitional main power source for AI data centers, with supply-demand imbalances unlikely to be alleviated in the short term.

According to Zhuifeng Trading Desk, HSBC recently released a report stating that due to surging AI-driven demand, orders from leading natural gas generator set manufacturers have been scheduled until the end of 2027. Equipment prices for 2025 have already increased by 15% to 20%.It is expected that supply tensions will continue until 2027–2028, with equipment prices still rising by 10% to 15% annually during this period.

Natural Gas Generator Sets: Why They Became the New Favorite of AI Data Centers

The rise of natural gas generator sets in the main power source market for AI data centers stems from their significant advantages in delivery cycles, start-up performance, and flexibility.

Firstly, the delivery cycle of natural gas generator sets is 1 to 2 years, significantly shorter than the 2 to 4 years required for gas turbines, enabling them to match the pace of data center expansion more quickly.

Secondly, for cold start times, natural gas generator sets require only 30 to 60 seconds—much faster than the 5 to 60 minutes needed for gas turbines, which is crucial for AI training scenarios with highly volatile loads.

Additionally, single generator set capacity ranges from 2 to 8 megawatts, with high modularity, making it easy to expand as needed, and after grid connection is completed (expected around 2030), can flexibly be converted to backup power sources.

By contrast, although large gas turbines provide single unit capacities of 100 to 500 megawatts or more, their deployment cycle is long and flexibility is weak, making them more suitable for stable demand scenarios like large cloud computing facilities, rather than the aggressive load profiles of AI training scenarios.

Supply-Demand Imbalance: Order Overflow, Prices Continue to Rise

In the high-speed natural gas generator set sector, Caterpillar and INNIO Jenbacher together hold about 65% of the market share, and both companies’ orders have been filled up until the end of 2027. The medium-speed generator set market is led by Wärtsilä and Everllence, with a combined market share of about 75%, and they are also at full capacity.

In terms of pricing, total capital expenditure for deploying natural gas generator sets in a data center is currently about $1,400 to $1,700 per kilowatt, with the bare generator set itself costing about $600 to $1,000, auxiliary equipment about $200, and exhaust treatment about $100 per kilowatt.

Quoted prices for bare generator sets differ significantly among major manufacturers: Caterpillar, CMI, and MTU (2 to 8 MW models) are about $600 to $650 per kilowatt; Jenbacher is about $750 to $800; Wärtsilä and Everllence (20 to 25 MW models) are as high as $800 to $1,000 per kilowatt.

It is expected that the supply and demand of natural gas generator sets will return to balance around 2028–2029, by which time prices may see a significant correction. In contrast, the supply-demand turning point for diesel generator sets is expected to come earlier, around 2027–2028.

Core Beneficiaries: Caterpillar and Weichai Power

HSBC’s report focuses on recommending two stocks, each with its own emphasis.

Caterpillar is viewed by HSBC as an "indispensable" supplier in AI data center construction.

The company’s product line covers diesel generator sets, natural gas generator sets, and gas turbines, holding a strong market position. In the high-speed natural gas generator set market, Caterpillar ranks first with about 35% market share; it also leads in the diesel generator set market.

Weichai Power, on the other hand, is seen as having potential for market share gains, with three major catalysts:

First, shorter delivery cycles (30 to 60 weeks, compared to 100 weeks for Caterpillar and Cummins); second, natural gas generator set products are planned to be launched in the second half of 2026, with 2–3 MW models expected to hit the market in June 2026, and 5 MW and 7 MW medium-speed models expected in December 2026; third, its solid oxide fuel cell (SOFC) business capacity is continuing to ramp up.

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