The bull market for power equipment is "still in the early to middle stages," says JPMorgan: U.S. power grid upgrades have yet to begin, and Chinese companies have the potential to break into the U.S. market.

The bull market for power equipment is "still in the early to middle stages," says JPMorgan: U.S. power grid upgrades have yet to begin, and Chinese companies have the potential to break into the U.S. market.

J.P. Morgan stated that although the global power equipment industry has outperformed the broader market for three consecutive years, the industry is still in its early to mid-term stage, and the super cycle of power equipment is far from over. Data center power demand will become a key bottleneck, and Asian companies, especially those from South Korea and China, will continue to benefit from the structural demand growth in developed markets such as the United States.

According to news from Wind Chasing Trading Desk, J.P. Morgan analysts said in a report on November 18 that AI-driven growth in power consumption is accelerating. By 2028, global installed capacity for AI data centers will grow from 117 GW to about 242 GW, with a compound annual growth rate of 27%.

In the United States, data center installed capacity is expected to grow by a compound annual growth rate of over 15%, rising from 42 GW in 2024 to 100 GW in 2030.

Meanwhile, the U.S. power grid infrastructure faces severe challenges. U.S. utilities are expected to invest $1.1 trillion in power generation, grid upgrades, and expansions between 2025-2029, with utility capital expenditures expected to reach about $208 billion in 2025, an increase of 17% year-on-year.

Despite the explosive demand, supply-side capacity expansion remains exceptionally “disciplined.” The delivery cycle for large power transformers (LPT) has now been extended to 2-3 years, switchgear to more than 1-2 years, and gas turbines require 3-4 years.

J.P. Morgan statistics show that new capacity added by major LPT manufacturers in the United States can only meet about 20-30% of annual demand growth. This structural supply-demand contradiction supports equipment manufacturers in maintaining strong pricing power for the coming years. The trend of product prices rising over 60% since 2021 shows no signs of slowing down.

With the ongoing global transformer shortage and gaps in domestic U.S. capacity, Asian and Chinese companies with cost advantages and delivery capabilities are expected to gain more market share in developed markets (DMs) and enjoy profit surges from high overseas gross margins.

Data Centers Will Ignite a 100 GW New Gap

Global power consumption growth is accelerating, with AI data centers (DC) as the core driving force of this trend.

The J.P. Morgan U.S. team predicts that just to support data center electricity demand, the U.S. will need about 100 GW of additional generation capacity by 2028.

Globally, data center power installed capacity is expected to grow from 117 GW in 2023 to about 242 GW in 2028, with a compound annual growth rate (CAGR) as high as 27%.

However, the supply side is “standing still.”

The net new base-load capacity (gas/nuclear) in the U.S. will remain flat before 2029, causing grid reserve margin rates to tighten sharply in key regions such as ERCOT (Texas) and PJM (East), with some areas maintaining only around 20% or lower. This supply-demand imbalance is pushing up electricity prices, with forward electricity prices in PJM West and East for 2026 rising about 15% since the start of this year.

U.S. Grid “Extremely Fragile”: Connection Queue as Long as 7 Years, Transmission Network Construction Severely Lagging

The explosive growth of data centers is hitting the “wall” of America’s aging grid.

Due to grid constraints, the wait time for data centers to be connected to the grid is becoming desperate: In Virginia, wait times are up to 7 years; in some areas of Texas, it may even reach 11 years.

The root cause of this bottleneck lies in the severe underinvestment in transmission networks in the U.S. over the past decade.

Data shows that in 2023-2024, the U.S. is building less than 700 miles of new high-voltage transmission lines annually, a sharp drop compared to the pace of 4,000 miles per year in 2013. To achieve grid reliability goals, 5,000 miles need to be built annually going forward.

J.P. Morgan points out that current main demand for high-voltage power equipment still comes from renewable energy grid connection projects (accounting for over 70%), while the real “grid upgrade/replacement cycle” has not fully begun. More than one-third of equipment in the U.S. grid has been in use for over 30 years, but replacement demand only accounts for 20-25% of total current demand. This means that once demand for replacing old infrastructure accelerates in the coming years, equipment shortages will further intensify.

Supply Chain “Tension” Becomes Routine: Capacity Expansion Restricted, Prices Remain High

Though demand is booming, supply-side expansion is exceptionally “disciplined.” The delivery cycle for large power transformers (LPT) has now been extended to 2-3 years, switchgear to more than 1-2 years, and gas turbines require 3-4 years.

Leading manufacturers (such as Hyundai Electric) have announced expansion plans, but are limited by the shortage of skilled labor and raw material supplies, so capacity rollout is slow.

J.P. Morgan statistics show that the new capacity added by major LPT manufacturers in the U.S. can only meet about 20-30% of annual demand growth. This structural supply-demand contradiction supports equipment manufacturers in maintaining strong pricing power in the coming years, and the trend of product prices rising over 60% since 2021 shows no signs of slowing down.

Eyes on 2027 Profits: Chinese Companies Usher in Overseas Opportunities

Although the power equipment sector has risen significantly so far this year and valuations have increased, J.P. Morgan believes the market continues to underestimate the long-cycle nature of the industry.

Current order backlogs are sufficient to support leading companies’ revenues for the next 2.5 to 2.8 years, and profit visibility is very high. Therefore, the valuation framework should shift from focusing on short-term P/E ratios to anchoring profit-generating ability in 2027.

J.P. Morgan emphasizes that the potential for Chinese companies (such as Siyuan Electric) to break into the U.S. market is one factor the market has not fully priced in. With the ongoing global transformer shortage and gaps in domestic U.S. capacity, Asian and Chinese companies with cost advantages and delivery capability are expected to gain more market share in developed markets (DMs) and enjoy profit surges from high overseas gross margins.

 

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

The wonderful content above is from Wind Chasing Trading Desk.

For more detailed interpretation, including real-time analysis and frontline research, please join [Wind Chasing Trading Desk▪Annual Membership]

Risk Warning & DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice, nor does it take into account the special investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Investing accordingly is at your own risk.