The AI wave combined with the upgrade of the power grid, Morgan Stanley proclaims: The U.S. transformer supercycle will last until 2030.

```

The United States is currently in a transformer supercycle driven by grid upgrades, renewable energy transition, and explosive growth in data centers.

According to Wind Chasers Trading Desk, Jens Spiess, an analyst at Morgan Stanley Mexico, together with teams from several regions worldwide, published a research report. The key judgment: the US power grid is experiencing a supply-demand mismatch that will last at least until 2030. The large power transformer (LPT) market will expand at a compound annual growth rate of about 14%, bringing a multiyear window of excess profits to related manufacturers.

On both the supply and demand sides, US power demand is back on a growth track after 20 years of stagnation. Aging infrastructure is desperately in need of replacement. The large-scale integration of wind and solar energy is bringing new transmission needs, coupled with the explosive expansion of data centers—these forces together are driving soaring demand for large power transformers (LPTs), but US domestic capacity is far behind. Since 2021, US apparent consumption of large power transformers has more than tripled, but domestic production has increased by less than 60% over the same period. Import dependence has risen from about 70% in 2021 to over 85% now.

The highest profit elasticity lies with “pure transformer” manufacturers. In a bull market scenario, driven by LPT market growth, the earnings per share (EPS) forecasts for Hyundai Electric, GEV, WEG, LS Electric, and Sieyuan Electric for 2027 are expected to rise by 8%, 6%, 5%, 4%, and 4%, respectively. Companies are locking in high profits through contract price adjustment clauses; current order backlogs span about three to five years, and the high-profit state is expected to last at least until 2030.

Demand Side: It’s More Than Just Grid Aging

Aging of the US grid is the starting point of the issue, but not all of it. According to US Department of Energy 2024 data, about 55% of operating distribution transformers are over 33 years old—past their normal service life.

A bigger variable comes from a fundamental shift in power demand structure. US electricity demand was almost flat over the previous 20 years (compound annual growth rate of about 0.4%). Morgan Stanley now predicts annual growth of 2.6% before 2035, a number that has been revised up several times in the last two years.

About 78% of incremental demand comes from data centers, whose power consumption will grow at about 30% per year over the next five years. Their share of total US power consumption will rise from about 6% in 2024 to about 18% in 2030. From 2025 to 2028, US data centers will add about 74GW of power demand, creating a supply gap of 9–18GW.

The rapid expansion of renewables further boosts transformer demand from another dimension. Distributed, multi-site generation models require each access point to be equipped with a step-up transformer. The more installed capacity, the more transformers are required. By 2035, renewables’ share of the US power mix is expected to grow from about 23% in 2024 to about 32%. Wind and solar will account for about 53% of the new-build capacity totaling 759GW.

Capacity can’t keep up: New factories won’t come online before 2027 at the earliest

How severe is this supply-demand mismatch? In 2024, US domestic LPT production is only about 200 to 300 units. Just to support additional generation capacity from 2025 to 2030, about 4,300 LPTs are needed—two to three times US domestic production (assuming no capacity expansion). If grid modernization and microgrid modifications are included, this number could quadruple.

Siemens Energy, Hyundai Electric, Eaton, Hitachi Energy, Prolec GE and others have all announced expansion plans in North America, with investments ranging from tens of millions to over US$1 billion. But building a new transformer factory generally takes one to three years before production can start; manufacturing production equipment itself sometimes has a lead time of up to six years; and high product customization further lengthens production. Most new capacity won’t come online until 2027–2029, when the market will still be supply-driven.

Transformer prices have already risen about 80% cumulatively over the past five years, but this upward trend is slowing. WEG, GE Vernova, and Siemens Energy all mentioned pricing stabilization in recent earnings calls. This doesn’t mark an inflection point for profit margins—manufacturers have locked in high profits in order backlogs through price-adjustment clauses covering raw materials, inflation, and tariff shocks. The high-profit window is expected to extend at least until 2030.

Additionally, Morgan Stanley has upgraded the ratings of Hyundai Electric and six other companies. Hyundai Electric has the highest North American exposure, with orders booked through 2028 and a record Q4 operating margin of 27.6%. GE Vernova’s order backlog stands at $30.5 billion, with visibility extending to the end of the decade. Eaton Electric’s backlog is at a record high of $15.3 billion with a burst of capacity expansions. Siemens Energy’s Grid division has a backlog of €21.4 billion, with profit margins still expanding but not fully realized. Sieyuan Electric is benefiting from global supply shortages, with rapidly growing overseas orders and continuous penetration into mature markets. CG Power plans to expand large transformer capacity fivefold and has secured nine-figure orders from US data centers. LS Electric is benefiting from AI data center power distribution demand, with annual EPS CAGR from 2025 to 2028 expected to be about 45%.

~~~~~~~~~~~~~~~~~~~~~~~~

The above content is from Wind Chasers Trading Desk.

For more detailed analysis, including real-time interpretations and frontline research, please join Wind Chasers Trading Desk ▪ Annual Membership

Risk Warning and DisclaimerThe market has risks, investment needs caution. This article does not constitute individual investment advice, nor does it take into account the special investment objectives, financial circumstances or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk. ```