Key Points
AI infrastructure spending is driving demand for GE Vernova's gas power turbines and electrification equipment.
Improving momentum in AI-related spending is improving the outlook
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GE Vernova (NYSE: GEV) stock rose by 21.3% in June, according to data from S&P Global Market Intelligence. It's an impressive move, but it doesn't relate to any kind of update from the company itself. Instead, it comes down to a combination of events that support the bullish case for the company and encourage investors to pencil in higher long-term earnings and cash flow for the company
GE Vernova's earnings momentum
As a reminder, GE Vernova isn't a typical AI data center buildout play. It's not a company that tends to generate the bulk of its earnings from its equipment sales. Instead, its core product of gas power turbines (increasingly being used to generate power for AI data centers) tends to generate a long-term stream of revenue and income from higher-margin services under long-term agreements signed with equipment sales.
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As such, whenever the end-market environment improves for the company and its equipment orders increase, investors need to start penciling in an increase in long-term cash flows. Fortunately, they had good reason to do this through the month of June.
GE Vernova's end market improves
The question of whether the AI investment market is in a bubble or not continues to perplex investors. My own view is that history suggests it will form a bubble, much as railroads or the internet did previously. However, history also suggests that there will be plenty of people who call a top too early and that it's far from clear where the baseline of the trend is right now.
What is clear is that companies continue to raise their estimates of AI-related spending. For example, Oracle gave its fourth quarter 2026 results in June and told investors it planned to increase its reported capital spending to $90 billion to $95 billion in its fiscal 2027 from $56.7 billion in its fiscal 2026.
Image source: Getty Images.
Meanwhile, another of the major hyperscalers, Alphabet, announced an $80 billion equity capital raise, earmarked to spend on AI infrastructure and compute.
In addition, memory chip company Micron reported stellar results, sending the AI-related sector higher in June.
GE Vernova has other earnings drivers too
Aside from AI data centers, GE Vernova's gas turbines and electrification equipment also benefit from the increasing need for energy security around the globe, and it may even benefit from the reconstruction of Iran's infrastructure, provided there is a cessation of hostilities in the region.
Image source: Getty Images.
A stock to buy
GE Vernova's overall backlog totaled $163 billion at the end of the first quarter ,and management expects to hit $200 billion in 2027. It's the key number to follow, and investors shouldn't be surprised if management raises its estimate for backlog in 2027 on the basis of the improving environment through June.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, GE Vernova, Micron Technology, and Oracle. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
