Xiaomo: AI electrical equipment stocks may overfall and rebound, but the sector as a whole still needs to be cautious

The Zhitong Finance App learned that J.P. Morgan Chase gave a set of apparently contradictory judgments in the latest electrical equipment sector rating adjustments: AI-related stocks may rebound sharply due to a sharp decline, but the entire electrical equipment and diversified industry sector should remain cautious. On individual stocks, GE Vernova (GEV.US) price target was lowered from $1,035 to $1,000, maintaining “holding”; Vertiv (VRT.US) gave “neutral” and a target price of $240; Hubbell (HUBB.US) lowered its target price from $486 to $470, maintaining “neutral.”

Koma's latest investigation

Based on Tuesday's closing price, there is a big difference in the space implied by the three new target prices: GEV about 25%, VRT about 23%, and HUBB only 7%. The seller consensus was clearly more optimistic. Koyfin's summary shows that 33 of the 38 analysts covering GEV gave a “buy” or “strong buy”, with a 12-month target price range of $940 to $1400, averaging $1182.83; VRT was bullish in 27 of the 30, ranging from $250 to $427, averaging $337.54; HUBB was the most divided, with 8 out of 15 bullish and 7 “holding”, with an average of $538.85 dollars.

Reasons for caution: the upward period has passed, and expanding production is the opposite of price risk

According to reports, J.P. Morgan's core judgment is that the strong rise in AI capital expenditure from 2024 to 2026 has passed and is currently on the verge of the fourth year of an upward cycle; rising interest rates have also raised the return threshold for data center projects. The report predicts that organic sales of electrical equipment related to data centers will still increase by 50% to 60% in 2027. Most demand has already fallen into the backlog of orders, but the growth rate will slow down, and the sales growth rate will decline significantly in 2028. According to the data, global data centers added about 35 GW of installed capacity in 2026 (+86% year over year), 63 GW (+81%) in 2027, and 77 GW (+24%) in 2028 — installed capacity is still increasing, but the growth rate dropped from more than 80% to 20% within a year. More importantly, the expansion of production by equipment vendors means that once demand weakens, prices may quickly come under pressure.

The report also highlights two vulnerabilities — deteriorating free cash flow and weak financing structures, and the risk of product switching due to changes in liquid cooling and 800VDC architectures. Buyers' sentiment has clearly cooled down, but J.P. Morgan said that due to the recent rapid decline in stock prices, it will not downgrade the rating to “reduce holdings” for the time being.

barbell strategy

In terms of specific configuration, J.P. Morgan Chase uses a barbell structure: the buying or increasing end is GEV, Trane Technologies (TT.US), FPS, nVent (NVT.US), Regal Rexnord (RRX.US), and SPX Technologies (SPXC.US); the neutral end includes Carr (CARR.US), Eaton (ETN.US), Johnson Controls (JCI.US) and VRT — the latter two were downgraded to the middle sexual.

Prior to that, the stock price had already dropped one round

This round of caution did not come out of thin air. In late October, SoftBank revealed that it had set aside 3.7 billion US dollars due to adjustments to the equipment procurement strategy for US AI data centers, involving non-refundable prepayments and contract amendments. GE Vernova fell nearly 10% at the beginning of the day — the market's interpretation at the time was that AI data center developers might be shrinking investment in power infrastructure. J.P. Morgan analyst Julian Mitchell said this was a negative sign of power equipment demand, but also pointed out that SoftBank's statement did not prove that GEV orders would be affected; the company's management also recently indicated that the order pipeline had not deteriorated abnormally.

Two company-level messages

According to individual stock news, GE Vernova announced an investment of 34.5 million US dollars to expand its transformer plant in Shreveport (Shreveport), Louisiana on November 10 to meet the growing demand for power grid equipment. The expansion is expected to add 175 new direct jobs and drive about 185 indirect jobs; the factory currently has more than 630 employees, and production capacity is expected to reach full capacity by 2028. The investment is part of the company's plan to invest nearly $1.3 billion in manufacturing sites and R&D centers in the US between 2025 and 2028.

Vertiv announced on November 4 that it has reached a three-year strategic agreement with Infineon to secure the supply of silicon and silicon carbide power semiconductors required for its global power supply product portfolio, covering 800VDC power systems, with the aim of ensuring supply continuity as demand for AI data centers rises and the company expands production capacity.

During the year, VRT rose more than 17%, GEV rose by more than 22%, and HUBB fell by more than 3%, according to Stocktwits data. On the Stocktwits platform, retail sentiment about GEV and VRT remained “neutral,” and discussions on GEV were “high”; sentiment about HUBB changed to “bullish” in the past 24 hours.