An off-grid power project gets a major proof of concept. What it means for GE Vernova
AI data centers powered by off-grid power plants took a big step forward this week; This bodes well for GE Vernova as challenges in the industry mount. Monday’s announcement from Chevron that Microsoft has signed a long-term power purchase agreement to support a massive new data center project couldn’t come at a better time. Microsoft will use energy from the Chevron power plant planned to be built in West Texas, and will be powered largely by natural gas turbines from GE Vernova, called Club. Essentially huge engines, these turbines are the best choice for producing so-called behind-the-meter energy, which avoids strain on local power grids. The effort to build data centers across the country to meet the massive demand for running AI workloads has not been well-received everywhere. Wells Fargo emphasized that political resistance was a central pillar of the lawsuit against GE Vernova. Analysts also cited growing turbine competition from rivals such as Mitsubishi and a slowdown in AI trading evident in Tuesday’s sharp decline in the tech-heavy Nasdaq. Shares of GE Vernova, still up 60% since the beginning of the year, fell more than 7% on the day. “The bears are getting louder,” Wells Fargo wrote in a note to customers Tuesday. Analysts noted that their fundamental case for GE Vernova remains positive. “We expect GEV to continue ‘running’ as long as the company maintains its ‘hit and raise’ momentum,” they said. Wells Fargo also maintained its buy equivalent rating and $1.259 per share price target; This indicates an increase of approximately 20% compared to the levels at the end of Tuesday’s session. Analysts also noted the enormous market share that GE Vernova’s equipment has in energy markets. They estimate that the company, which produces steam and gas turbines, hydrogen generators and nuclear reactors, produces about 25% of the world’s electricity. This market share insulated GE Vernova’s massive backlog—essentially a waiting list for customer orders for which each turbine added could translate into future revenue. Wells Fargo expects prices for heavy-duty machines to rise further as big tech firms fight to get in line. In fact, analysts noted that the company “has not yet reached its ceiling in price.” Inside Project Kilby The Chevron power plant that will be built in Reeves County and power Microsoft’s planned data center is called Project Kilby. The facility is expected to provide approximately 2.7 gigawatts of capacity. This is equivalent to the electricity needed by 2 million households. Chevron will supply the natural gas, while GE Vernova will provide most of the large turbines that will support the plant. This comes as no surprise, as the two have been partners on the project since it was announced in January 2025. Caterpillar is expected to supply the remainder of the turbines. Most importantly, the facility will be located next to a Microsoft-operated data center and will not be disconnected from the public grid. “There’s really no competition with local electricity consumers,” Jeff Gustavson, president of Chevron’s New Energies unit, told CNBC in an interview Monday. “As we have excess power over time, we plan to transfer it to the grid to stabilize it,” he added. Gustavson said dozens of such projects have been announced across the country, but few have been as successful as the Kilby Project. He argued that Project Kilby has the support of the community, where Chevron has a long history, and they see the benefits the new jobs will bring to the local economy. The multi-year backlog Kilby won’t happen overnight: The Microsoft data center isn’t expected to start receiving power from the facility until 2028. This timeline highlights the broader supply shortage facing the industry. A spokesperson for GE Vernova told CNBC that the Kilby Project turbines are now included in the company’s backlog, which totaled $163 billion at the end of March. The company expects this figure to reach $200 billion by the end of 2027, a year earlier than previously expected. The backlog continues to grow as GE Vernova’s heavy-duty turbines will be sold through at least 2028 and will have little capacity between 2029 and 2030. Bernstein analyst Sunaina Öcalan called Project Kilby “further evidence of the enormous demand for power we are seeing in the AI boom.” “Higher demand provides better pricing power for GE Vernova, which translates into margin expansion,” Öcalan added. The big question for investors: Will bigger projects like this come? “As we usually see with these hyperscalers [like Microsoft]Jeff Marks, the club’s director of portfolio analysis, speculated. Jeff pointed to Clubmate Corning as an example of the domino effect. In January, Corning announced a $6 billion supply agreement with Meta Platforms for fiber optic cables to be used in Facebook and Instagram’s data centers. Corning signed a deal with Nvidia in May; then signed another deal with Amazon in June. All of these technology giants are Clubs. Ultimately, there’s no doubt about it: Project Kilby’s acquisition of Microsoft is a big win not only for Chevron, but also for GE Vernova. The addition of a hyperscaler to a Texas power plant project raises the possibility of a surge in sales for GE Vernova’s critical power division — the biggest by revenue and the main reason we got into the stock. We’d be remiss if we didn’t further address Tuesday’s big selloff, which crashed GE Vernova as well as Club chipmakers Nvidia and Arm. GE Vernova’s fundamentals are outstanding, and GE Vernova’s incredible backlog and persistent demand for its turbines and other electrification solutions are unparalleled (see here for a full list of stocks in Jim Cramer’s Charitable Trust, including GEV, MSFT, GLW, META, NVDA, AMZN, ARM). When you join the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes before buying or selling a stock in his charitable foundation’s portfolio. After Jim talks about a stock on CNBC TV, he waits 72 hours before executing the transaction. AND PRIVACY POLICY, NO Fiduciary Obligations OR DUTIES EXIST OR SHALL BE CREATED IN CONNECTION WITH THE RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
