An off-grid power project gets a major proof of concept. What it means for GE Vernova
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CNBC Finance
6 min read
AI data centers powered by off-grid power plants took a major step forward this week, a good sign for GE Vernova as industry challenges pile up. Monday's announcement from Chevron that Microsoft has signed a long-term energy purchase agreement to fuel a massive new data center project couldn't have come at a better time. Microsoft will use energy from a planned Chevron power plant in West Texas, and will be largely powered by natural gas turbines from Club name GE Vernova. These turbines, which are essentially massive engines, are a top choice to create so-called behind-the-meter energy, which prevents stresses on local power grids. The push to build data centers across the country to meet the enormous demand to run AI workloads has not been met everywhere with open arms. Wells Fargo highlighted political resistance as a pillar of the bear case against GE Vernova. The analysts also cited increased turbine competition from rivals such as Mitsubishi and a slowdown in the artificial intelligence trade, which was evident in Tuesday's sharp slide in the tech-heavy Nasdaq . Shares of GE Vernova, which are still up 60% year to date, dropped more than 7% on the day. "The bears are getting louder," Wells Fargo wrote in a Tuesday note to clients. The analysts qualified that their base case on GE Vernova remains positive. "We expect GEV will continue to 'work' as long as the company continues its 'beat and raise' momentum," they said. Wells Fargo also kept a buy-equivalent rating and a $1,259-per-share price target, implying around 20% upside from Tuesday's late-session levels. The analysts also pointed to the enormous market share that GE Vernova's equipment has in energy markets. They estimate that the company, which makes steam and gas turbines, hydro generators, and nuclear reactors, generates roughly 25% of the world's electricity. That market share has insulated GE Vernova's hefty backlog â essentially a waitlist for customer orders where every added turbine could translate to future revenue. Wells Fargo expects pricing for the heavy-duty machinery to trend higher as big tech firms fight for a spot in line. In fact, analysts noted the company has "yet to hit a ceiling on price." Inside Project Kilby The Chevron power plant â which will be built in Reeves County and will power Microsoft's planned data center â has been dubbed Project Kilby. The facility is expected to deliver roughly 2.7 gigawatts of capacity. That's equivalent to the power needed for 2 million households. Chevron will supply the natural gas, while GE Vernova will provide the majority of the large turbines to support the plant. It's not a surprise, as the two have been partners on the project since it was announced in January 2025. Caterpillar is expected to provide the remainder of the turbines. Crucially, the plant will be located beside the Microsoft-operated data center and won't run off the public grid. Jeff Gustavson, president of the Chevron New Energies unit, told CNBC in an interview Monday, "There's really no competition with local electricity consumers." He added that "over time, as we have excess power, we plan to push that into the grid to help stabilize it." Gustavson said there are dozens of these types of projects announced around the nation, but few are as far along as Project Kilby. He said Project Kilby has the support of the community, where Chevron has a long history, arguing they see the benefits to the local economy that new jobs will bring. Multiyear backlog Project Kilby won't take place overnight: The Microsoft data center isn't expected to start receiving power from the plant until 2028. That timeline highlights the broader supply crunch facing the industry. A spokesperson for GE Vernova told CNBC that the Project Kilby turbines are currently factored into the company's backlog, which totaled $163 billion at the end of March. The company expects that number to reach $200 billion by the end of 2027, a year earlier than previously expected. The backlog continues to grow because GE Vernova is sold out of the heavy-duty turbines through at least 2028, with little capacity across 2029 and 2030. Bernstein analyst Sunaina Ocalan called Project Kilby "just another proof point of the enormous power demand that we're seeing" in the AI boom. "Higher demand is driving better pricing power for GE Vernova that is translating into margin expansion," Ocalan added. The big question for investors: Are there more big projects like this to come? "As we usually see with these hyperscalers [like Microsoft], one announces a deal, then you tend to get more down the road," Jeff Marks, director of portfolio analysis for the Club, speculated. Jeff pointed to fellow Club name Corning as an example of the domino effect. Corning announced in January a $6 billion supply agreement with Meta Platforms for fiber optic cables to be used in the Facebook and Instagram company's data centers. In May, Corning inked a deal with Nvidia ; then another one with Amazon in June. All of those tech giants are Club holdings. Bottom line There's no doubt about it: Project Kilby bringing Microsoft on board is a major win for not only Chevron but also for GE Vernova. Attaching a hyperscaler to the Texas power plant project increases the possibility for a boost in sales for GE Vernova's crucial power division â its largest by revenue, and a key reason we got into the stock. We would be remiss if we didn't further address Tuesday's big selloff, which took down GE Vernova as well as Club chipmakers Nvidia and Arm and the broader tech sector. We're not concerned about the dip. The fundamentals for GE Vernova are outstanding, and so are the fundamentals underpinning the AI boom. GE Vernova's incredible backlog and persistent demand for its turbines and other electrification solutions are unmatched. (See here for a full list of the stocks in Jim Cramer's Charitable Trust, including GEV, MSFT, GLW, META, NVDA, AMZN, ARM.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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