The AI Energy Economy — Part 2: Pick-and-Shovel Suppliers Powering AI Electrification
1. Why AI Is Creating a Historic New Energy Supercycle
Artificial intelligence is not just a technology story — it is also an energy story. Modern AI models require enormous clusters of GPUs and specialized accelerators, and those systems consume staggering amounts of electricity. A single hyperscale AI campus can require hundreds of megawatts to multiple gigawatts of power — comparable to the load of a mid-size city.
This growth is happening fast enough that U.S. regulators, grid operators, and utilities are converging on the same message: the electrical system is not ready. The bottlenecks show up in three concrete constraints:
- Generation, especially firm 24/7 power like nuclear and gas
- Transmission, which is already congested in many regions
- Grid hardware, including transformers, substations, and high-voltage equipment
Forecasts vary, but even relatively conservative scenarios envision a meaningful uplift in U.S. electricity demand over the next decade, while more aggressive scenarios — especially those tied to hyperscale GPU deployment — envision far larger increases. Either way, sustained load growth at this pace forces a build-out across the entire system.
Meeting that demand will require new capacity at multiple levels: new nuclear plants and SMRs, new gas turbines, large renewable and battery installations, massive new transmission projects, and a huge expansion in transformers, substations, and high-voltage equipment. It will also require a smarter, more automated grid.
Major grid-equipment makers have been investing heavily in manufacturing capacity to relieve shortages in transformers and high-voltage equipment, as demand is being pulled forward by data centers, renewables, and broader electrification.
This is the backdrop for one of the most compelling investment themes of the decade: the pick-and-shovel companies that build the hardware for AI-driven electrification.
2. What “Pick-and-Shovel” Means in the AI Power Era
During the Gold Rush, the most reliable profits didn’t go to the miners. They went to the companies selling the tools — the shovels, rails, and equipment everyone needed regardless of who struck gold. The same logic applies to the AI electrification boom.
Pick-and-shovel companies in this cycle don’t run power plants and don’t operate data centers. Instead, they build the physical infrastructure that both sides depend on. Their products and services show up everywhere electricity has to be produced, moved, stepped down, stabilized, and delivered.
In practice, that means these firms manufacture and install the core building blocks of electrification, including:
- turbines
- transformers
- high-voltage equipment
- transmission hardware
- nuclear components
- substations
- grid automation systems
- industrial electrical controls
- large-scale batteries
- software that optimizes and routes electricity
As AI accelerates demand for stable, high-capacity electricity, these firms become essential suppliers of the entire system. They can benefit from every new grid upgrade, every data-center expansion, and every new generation project — regardless of whether utilities themselves are capped by regulation.
How this connects to “torque,” a term introduced in Part 1: Many pick-and-shovel names are medium-to-high torque because they sit close to bottlenecks (transformers, high-voltage gear, turbines, cabling, and substation build-outs). When lead times stretch and reliability becomes urgent, orders can accelerate and pricing power can improve.
3. Why Pick-and-Shovel Plays Can Outperform Traditional Utilities
Utilities will benefit from rising electricity demand, particularly those serving high-growth regions like Virginia and Texas. But utilities face structural limits that pick-and-shovel companies often avoid.
Utilities are heavily regulated, their returns are capped by commissions, they operate within specific geographic footprints, and rate cases move slowly. Even when demand grows quickly, the financial upside often shows up gradually.
Pick-and-shovel companies operate differently. They sell across many regions and technologies. Every new power project — whether nuclear, gas, wind, solar, or storage — requires equipment, engineering, and grid hardware. These suppliers can win regardless of which generation technology scales fastest.
They also tend to have a different margin profile. Once the engineering and manufacturing platform is built, incremental revenue can become highly profitable. When a GE Vernova turbine or Eaton system is sold, the margin on each additional unit can widen — especially in tight supply environments. And because many power-infrastructure projects run on multi-year cycles, these companies often build large backlogs that create visibility and durability.
Their risk profile is different too. Instead of depending on short-term power prices, pick-and-shovel names depend on long-term capital spending cycles — cycles that are strengthening as AI forces grid expansion.
The transformer and high-voltage supply chain is a concrete example of why pick-and-shovel economics can “show up faster” than regulated utility earnings. When delivery times are long and equipment is scarce, suppliers gain urgency, backlog visibility, and sometimes pricing power — even before the full generation build-out is finished.
4. Pick-and-Shovel Companies Powering AI Electrification
The companies below supply the physical infrastructure that makes AI-scale electrification possible. They do not sell electricity; they sell the turbines, transformers, transmission, control systems, batteries, and electrical hardware that utilities and hyperscalers must deploy as AI-driven load growth forces the grid to expand.
Some companies appear in multiple parts of this series because they operate across several layers of the AI energy system. A small number of firms — notably GE Vernova — span generation equipment, grid construction, and system integration, placing them repeatedly at points where AI-driven constraints emerge.
a. GE Vernova (GEV)
System-wide electrification and generation equipment platform
What the company does
GE Vernova sits at the center of the global electricity supply chain. It builds gas turbines (where it is a global leader), nuclear reactor systems, high-voltage transformers, substations, grid equipment, wind turbines, and grid-management software. It is one of the closest things in public markets to a system-wide electrification supplier.
Why GEV matters in the AI era
AI-driven load growth increases demand for nearly every product GE Vernova sells at once:
- gas turbines for firm, dispatchable power
- nuclear systems and services for long-duration baseload
- transformers and grid equipment for expansion and reliability
- software to manage increasingly complex power flows
GE Vernova benefits not from one bottleneck, but from many bottlenecks simultaneously.
What’s new since December
GE Vernova raised its multi-year outlook and emphasized the scale of turbine contracting and backlog tied to electrification and data centers, reinforcing that AI-era demand is pulling forward orders across its portfolio.
Investment considerations
- Current price (Jan 10, 2026): $622.50
- Torque profile: High — but system-wide rather than a single choke point
- Valuation framing: Not cheap; sentiment is strong after a major run
- Key risk: Any slowdown in order conversion or margin execution matters more when expectations are high
Rating: Buy
Rationale: GE Vernova is one of the most direct ways to own the physical constraints AI hits first — turbines and grid equipment. The valuation reflects that recognition, but the breadth of exposure and backlog visibility justify a core position.
b. Eaton (ETN)
Electrical distribution, protection, and power safety backbone
What the company does
Eaton supplies switchgear, breakers, power-distribution units, controls, and protection systems — the hardware that makes high-density electricity safe and usable inside data centers, substations, and industrial facilities.
Why Eaton matters in the AI era
As AI pushes power density higher, spending shifts toward exactly Eaton’s categories. Every data center, substation upgrade, SMR site, and transmission project needs Eaton components. Eaton benefits from power density, not hype.
What’s new since December
Eaton has explicitly framed data centers and “grid-to-chip” power delivery as a major growth driver and announced investments to expand capacity supporting those solutions.
Investment considerations
- Current price (Jan 10, 2026): $324.50
- Torque profile: Medium–high — close to the “make power usable and safe” constraint
- Valuation framing: Often looks expensive vs. its own history
- Key risk: Premium valuation leaves less room for execution missteps
Rating: Buy / High-Conviction Hold
Rationale: Eaton is a high-quality compounder tied directly to AI-era power density. It may not explode upward, but it tends to hold value across cycles better than narrower bottleneck plays.
c. Quanta Services (PWR)
The company that physically builds the grid
What the company does
Quanta designs and builds transmission lines, substations, and distribution infrastructure. It is the contractor utilities rely on when the grid must actually be expanded.
Why Quanta matters in the AI era
More generation is useless without transmission. AI load growth forces utilities to build — not just plan — new wires and substations. Quanta sits directly on that reality.
What’s new since December
Quanta continues to highlight record backlog and long-term visibility tied to grid build-outs and data-center-driven demand.
Investment considerations
- Current price (Jan 10, 2026): $422.57
- Torque profile: Medium — long-cycle capex rather than instant repricing
- Valuation framing: Often looks rich during upcycles due to backlog durability
- Strategic edge: Scale, relationships, execution; trust is a moat
Rating: Buy
Rationale: If the grid must be built — and AI makes that unavoidable — Quanta is structurally positioned to be booked for years. Valuation is high, but visibility is unusually strong.
d. Fluence (FLNC)
Grid-scale batteries and optimization software
What the company does
Fluence builds large-scale battery systems and the software utilities use to operate them. Storage smooths volatility, supports renewables, and helps grids handle peak stress.
Why Fluence matters in the AI era
AI increases peak demand and volatility. Storage becomes more important as grids are asked to serve dense, continuous AI loads while managing renewables.
What’s new since December
Fluence issued updated financial results and 2026 guidance, reinforcing that this remains a scaling story with meaningful earnings volatility. The stock continues to react sharply to results and expectations.
Investment considerations
- Current price (Jan 10, 2026): $23.20
- Torque profile: High — but execution-driven
- Valuation & risk: Large upside if storage becomes central to AI-era grid stability; uneven path
Rating: Speculative Buy
Rationale: Storage is structurally necessary, but Fluence carries execution and margin risk. Position sizing and time horizon matter much more here than with industrial compounders.
e. ABB (ABBNY)
Global electrification and automation platform
What the company does
ABB supplies high-voltage equipment, power electronics, industrial automation, and robotics across utilities, factories, and data centers worldwide.
Why ABB matters in the AI era
Electrification demand touches nearly every ABB business line. Its global footprint provides exposure beyond U.S. data-center clusters.
What’s new since December
ABB raised its profitability margin target, signaling confidence in mix, pricing, and execution amid electrification demand.
Investment considerations
- Current price (Jan 10, 2026): ~$75.25
- Torque profile: Medium — diversification smooths spikes
- Valuation framing: Reasonable for quality; durability over drama
Rating: Hold / Buy
Rationale: ABB is a stabilizing, lower-volatility way to own the electrification theme alongside higher-torque names.
f. Schneider Electric (SBGSY)
Power quality, automation, and data-center electrical infrastructure
What the company does
Schneider supplies UPS systems, power conditioning, enclosures, microgrids, and automation used heavily in hyperscale data centers.
Why Schneider matters in the AI era
As AI clusters grow, perfectly conditioned, reliable electricity becomes mandatory. Schneider is embedded directly in data-center electrical architecture.
What’s new since December
Schneider reiterated a strong long-term growth outlook tied to electricity demand and AI data centers.
Investment considerations
- Current price (Jan 10, 2026): ~$54.90
- Torque profile: Medium–high — close to facility-level constraints
- Valuation framing: Frequently premium due to “in-the-build-spec” status
Rating: Buy / Hold
Rationale: A core data-center electrification supplier. Often priced like a great company — because it is one.
g. Siemens Energy (SMEGF)
HVDC transmission, turbines, and grid hardware
What the company does
Siemens Energy builds gas turbines, HVDC transmission systems, and large transformers — all essential for moving power efficiently and stabilizing strained grids.
Why Siemens Energy matters in the AI era
AI clusters increase congestion and long-distance power needs. HVDC transmission becomes critical at multi-gigawatt scale.
What’s new since December
Siemens Energy reported strong turbine and grid demand tied to data centers and highlighted record order dynamics.
Investment considerations
- Current price (Jan 10, 2026): ~$147.09
- Torque profile: Medium–high — HVDC and grid bottlenecks can move quickly
- Valuation framing: Recovery + cycle dynamics still apply
Rating: Buy
Rationale: One of the clearest ways to invest in the “move power at scale” problem AI exacerbates — execution matters, but the structural need is real.
5. Portfolio Construction
Pick-and-shovel stocks offer diversified, global exposure to the power megacycle AI is accelerating. One way to think about construction is to blend three “buckets” that behave differently:
Stable global electrification platforms:
GE Vernova (GEV), ABB, Schneider Electric, Siemens Energy
Direct U.S. grid build-out exposure:
Quanta Services (PWR), Eaton (ETN)
Growth-oriented storage exposure:
Fluence (FLNC)
These names benefit regardless of whether the next gigawatt of AI power comes from nuclear, gas, solar, wind, or storage — because they supply the infrastructure all of these technologies require.
6. Why Pick-and-Shovel Plays Belong Beside Utility and Nuclear Stocks
If you already invest in utilities like Constellation (CEG), Vistra (VST), NextEra (NEE), Dominion (D), or Duke (DUK), adding pick-and-shovel companies can create a more complete “AI energy” portfolio.
Utilities profit by selling electricity. Pick-and-shovel companies profit when utilities and grid operators spend money to expand and reinforce the system — building new plants, expanding transmission, upgrading substations, adding batteries, replacing transformers, and modernizing grid controls.
Those capital spending cycles tend to be long-duration and recurring. Even when electricity prices fall, infrastructure upgrades often continue because reliability requirements, interconnection queues, and replacement cycles don’t pause just because markets soften.
The transformer/high-voltage constraint is one reason these cycles persist: even when “plans” change, the physical replacement and lead-time realities don’t vanish — and that supports multi-year capex and supplier backlogs.
7. Conclusion: The AI Electrification Decade Has Begun
AI is the most electricity-intensive technology ever built, and its growth is reshaping global energy demand. No matter how quickly adoption scales — slow, medium, or explosive — the world will need more generation, more wires, more substations, more transformers, more storage, more automation, and more grid resilience.
Companies selling the tools, hardware, and systems behind this build-out — GE Vernova, Eaton, Quanta Services, ABB, Schneider Electric, Siemens Energy, and Fluence — are positioned to benefit across nearly every scenario. They are the durable, global pick-and-shovel winners of AI-driven electrification.
References (Part 2)
Reuters — Grid equipment makers invest in U.S. to ease supply shortages
https://www.reuters.com/business/energy/grid-equipment-makers-invest-us-ease-supply-shortage–reeii-2025-12-02/
GE Vernova — Raises multi-year financial outlook; doubles dividend; expands buyback
https://www.gevernova.com/news/press-releases/ge-vernova-raises-multi-year-financial-outlook-doubles-dividend-increases-buyback-authorization
Reuters — GE Vernova shares rise on bullish 2026 outlook and buyback boost
https://www.reuters.com/business/energy/ge-vernova-shares-rise-after-bullish-2026-revenue-outlook-buyback-boost-2025-12-10/
Reuters — GE Vernova expects major gas-turbine contracting tied to power demand
https://www.reuters.com/business/energy/ge-vernova-expects-80-gigawatts-gas-turbine-contracts-by-years-end-2025-12-09/
Eaton — Eaton invests $50M+ in Virginia facility to support “grid-to-chip” data-center demand
https://www.eaton.com/us/en-us/company/news-insights/news-releases/2025/eaton-invests-fifty-million-dollar-in-new-virginia-facility.html
Yahoo Finance — Quanta Services emerges as major data-center and grid build-out winner
https://finance.yahoo.com/news/quanta-biggest-winner-data-center-141100041.html
Investing.com — JPMorgan upgrades Quanta Services on large-project outlook
https://www.investing.com/news/analyst-ratings/quanta-services-stock-rating-upgraded-by-jpmorgan-on-large-project-outlook-93CH-4395495
Fluence Energy — FY2025 results and FY2026 guidance
https://ir.fluenceenergy.com/news-releases/news-release-details/fluence-energy-inc-reports-2025-financial-results-and-initiates
Fluence Energy — News & Events (Investor Relations)
https://ir.fluenceenergy.com/news-events
Reuters — ABB raises profitability margin target amid electrification demand
https://www.reuters.com/business/abb-raises-profitability-margin-goal-18-22-2025-11-18/
Investing.com — ABB ADR (ABBNY) quote and fundamentals
https://www.investing.com/equities/abb-ltd-adr
OTC Markets — ABB ADR (ABBNY) security page
https://www.otcmarkets.com/stock/ABBNY/security
Barron’s — Schneider Electric positioned for AI-driven electricity demand
https://www.barrons.com/articles/schneider-electric-stock-electricity-demand-1f392027
MarketWatch — Schneider Electric ADR (SBGSY) quote
https://www.marketwatch.com/investing/stock/sbgsy
Yahoo Finance — Schneider Electric ADR (SBGSY) historical prices
https://finance.yahoo.com/quote/SBGSY/history/
Investor’s Business Daily — Siemens Energy sees AI-driven turbine and grid demand
https://www.investors.com/news/siemens-energy-q4-earnings-ai-fuels-gas-turbine-demand/
MarketWatch — Siemens Energy ADR (SMEGF) quote
https://www.marketwatch.com/investing/stock/smegf
The AI Energy Economy Series:
-
- The AI Energy Economy — Part 1: The Nuclear & Utility Winners of the AI Power Boom (Updated)
- The AI Energy Economy — Part 2: The Pick-and-Shovel Suppliers Powering AI Electrification (Updated)
- The AI Energy Economy — Part 3 (Revised): The Connective and Last-Meter Layers of AI Electrification
- The AI Energy Economy — Part 4 (Revised): Industrial Automation, Cooling & Controls
- The AI Energy Economy — Part 5 (Revised): Merchant Power, Nuclear Scarcity, and AI Contracts
