Some parts of the energy market have been looking pretty frothy lately, but there's one segment Wall Street is betting won't end up in a bubble: grid technology stocks.
Steve Tusa, managing director and senior equity analyst at JPMorgan Chase & Co., says grid technology stocks remain attractive targets despite the sector's overall rally of about 30% this year. Grid technologies include a wide range of hardware manufacturers and software developers, as well as utility-scale battery installers. Tusa said investors would be wise to take advantage of the slight decline in the stock price.
“At this stage, any pullback is a buying opportunity,” Tusa said.
Take Vertiv Holdings Co., which provides microgrid and energy storage solutions for data centers. The company's stock is up about 60% this year and trades at a “significant premium” to the S&P, but the company's growth “justifies” the premium, he said.
Other grid technology stocks have also seen big gains this year, reflecting the data center boom. South Korean transformer makers Hyosung Heavy Industries and LS Electric have led the charge, soaring about 400% and 230%, respectively, this year. In the United States, shares in inverter system maker SolarEdge Technologies have more than doubled, while engineering firm Wildan Group is trading just below its all-time high.
“This is not just an AI issue,” says Tim Chan, head of sustainability research for Asia Pacific (excluding Japan) at Morgan Stanley. “Overall, energy demand is increasing.”
Fidelity International's view is that a “very long-term structural shift” is currently occurring, said Gabriel Wilson-Otto, Fidelity's head of sustainable investment strategy. This change is being driven by electrification and the growing demand for electricity in Asian economies, especially to ensure energy security, he says.
He said non-AI factors are “playing a bigger role” in boosting energy demand in developing countries, which should support grid technology stocks globally. As climate change accelerates extreme weather events, there is an urgent need to update aging power grids.
Global grid spending is expected to increase 16% this year to $479 billion and reach $577 billion by 2027, according to a recent BloombergNEF report. Data center energy demand is also expected to more than double by the end of this decade, and all new power plants will need to be connected to the grid, according to the International Energy Agency.
The Nasdaq OMX Clean Edge Smart Grid Infrastructure Index, a leading index that tracks companies with business exposure to grid infrastructure, is up about 30% this year, outperforming other major stock indexes. The Nasdaq 100 index, which includes Nvidia, Apple and Microsoft, rose about 22% during the period. The Grid Index trades at 21 times forward earnings, making it a discount to the Nasdaq 100.
Indeed, when fears of an AI bubble hit the market last month, grid technology stocks also fell. And not everyone is convinced that the field can survive a potential AI slowdown.
“The grid as a theme is still a structural winner in 2026,” said Lisa Ode, founder and chief investment officer of Tall Trees Capital Management LP, a U.S.-based boutique hedge fund focused on the energy transition. But he said a lot of good news is already priced into this year's stock price rally. Investors need to be “very cautious about valuations and cyclicality,” he warned.
Many grid upgrades may require collaboration with utilities, or at least data from these regulated monopolies, which can delay or prevent investment. Some states have tightened oversight as customer bills increase, and some areas may find the risk too high and prevent them from implementing grid technology. The pace of implementation will vary by utility, state, regional transmission operator, and each region's broader regulatory structure.
Hedge funds reporting to Hazeltree, a US-based data provider, remain net bullish on the Nasdaq Grid Index. According to the data, long bets outweighed short bets for 66% of index members at the end of September, up from 59% the previous month. Hazeltree tracks positions in 108 of the 113 index constituents, with approximately 600 funds voluntarily reporting positions to the platform.
“Grid infrastructure is not primarily an AI story. You could also think of it as the chickens finally coming home to roost,” said Garvin Jabusch, chief investment officer at Green Alpha Advisors. The Nasdaq Grid Index has risen for three consecutive years since 2023, but previous gains have been more modest. As the AI boom puts grid infrastructure in the spotlight, “the market is finally starting to price in what should have been obvious for a long time,” Jabusch said.
This is especially true in the United States and Europe, where power grids were built decades ago when the majority of electricity was generated by fossil fuel-fired power plants and delivered to consumers by utilities. Renewable energy is now on the rise, and a combination of home battery storage and rooftop solar power can send power back to the grid, all of which require 21st century upgrades from transformers to power lines.
Venture capitalists also see opportunity in this area. “We didn't have to count on data centers to be a growth engine,” said Evan Caron, chief investment officer at Montauk Capital, which supports early-stage energy and grid startups. Adding data centers is “like pouring gasoline on a fire that's already burning,” he says.
Alex Darden, head of Americas infrastructure investment at global private markets firm EQT Partners, said that even with all the hype around AI, a series of tailwinds and the fact that grid infrastructure has historically been underinvested creates a “significant opportunity.”
And “it's not just a 2026 opportunity,” Darden said. “This is an investment cycle that spans years, maybe decades, and we're in that investment cycle right now.”
Liu, Mookerjee and Mull write for Bloomberg.
