"The second half of AI is energy!" The demand for computing power drives an electricity revolution. "Mining equipment sellers" emerge as a new force.

Last year, the high-flying computing power stocks reached their peak and then entered a consolidation phase within the year. Power stocks took over, with the industry consensus being “the second half of AI is energy.” This includes photovoltaic, thermal power, ultra-high voltage, smart distribution networks, and more, all seeing double-digit gains.

Several fund managers pointed out that domestic manufacturing, leveraging efficiency advantages, can deeply participate in this round of the global electricity revolution. When selecting investment targets, they pay more attention to export chains with higher gross profit margins. Additionally, as the electricity gap widens and multiple technical routes emerge, gas turbines are gradually showing a main trend. Several funds have achieved over 40% returns this year by heavily investing in related sectors.

The second half of AI is energy

On March 5, major AI companies such as Microsoft, Google, OpenAI, Amazon, Meta, and Oracle signed a “self-supply” pledge at the White House. They committed to isolating AI data centers’ power consumption from the public grid and residential electricity prices through a “self-built power plant + dedicated power purchase” model. Against the backdrop of rapid AI development, the US “power shortage” has once again become a focus for capital markets.

In relation to A-shares, recent power sector performance has been strong, with an upward trend remaining resilient despite index fluctuations. Since the beginning of the year, the Ultra-High Voltage Index, Virtual Power Grid Index, and Smart Grid Index have all increased by over 30%. Products like the Guotai Hang Seng A-Share Power Grid Equipment ETF, GF Hang Seng A-Share Power Grid Equipment ETF, and Huaxia CSI Power Grid Equipment ETF have all risen more than 35%.

In active equity funds, most of the top-performing funds this year have heavily invested in resource stocks like gold and oil or in storage stocks benefiting from rising prices. Funds such as Ping An Ding Yue and Ping An Xin An have also gained about 40% in just over two months, mainly due to heavy holdings in the power concept sector.

“Computing power ends with electricity; the second half of AI is energy,” explained Lin Qingyuan, the fund manager overseeing these two funds. He noted that the demand for AI computing power is exponential, while the upgrade of power grid infrastructure is linear. This mismatch is especially pronounced in North America—where the average age of the power grid is 50 years and the supply gap is large. The explosive energy consumption from AI data centers cannot be effectively met by local supply chains in the short term due to hollowing out of manufacturing and aging infrastructure. Electricity will become the bottleneck limiting capacity.

Wu Zhonghao, a fund manager at Guotai Fund, believes that domestic investment in power infrastructure is a key driver behind the recent surge in the power sector. During the 14th Five-Year Plan, the State Grid Corporation’s fixed asset investment is expected to reach 4 trillion yuan, a 40% increase from the 14th Five-Year period. Main grid construction will remain a focus, with inter-provincial transmission capacity increasing by over 30% by the end of the 14th Five-Year Plan, alleviating bottlenecks for new energy and hydropower exports.

Focus on export chains

Many fund managers pointed out that domestic manufacturing, with its efficiency advantages, can deeply participate in this global electricity revolution. When selecting investment targets, they pay more attention to export chains with higher gross profit margins.

Wu Zhonghao believes that Chinese companies’ core advantages lie in three areas:

1. A complete industrial chain and cost advantages. After experiencing demand downturns in 2021–2022, foreign giants significantly reduced capacity and adopted cautious expansion. Domestic companies, however, boast the most complete and efficient global supply chains, ample capacity, and shorter delivery cycles, benefiting from overseas demand spillover.

2. Leading technological strength and service capabilities. Domestic firms have reached advanced levels in ultra-high voltage and flexible DC fields, accumulating rich experience in large, complex projects. Meanwhile, top domestic companies are actively developing new technologies like solid-state transformers (SST). Some early entrants in North America have established channels, with “technology + channels” driving stronger order acquisition.

3. Profit quality and sustainability. Overseas projects tend to be more diversified, with higher overall gross margins than domestic ones. The long upgrade cycles of European and American power grids, the continuous growth in AI data center power demand, and the accelerated electrification in emerging markets provide long-term stable markets for Chinese companies.

Lin Qingyuan also noted that in terms of delivery cycles, leading European and American manufacturers take 1.5 to 2 years, while Chinese companies, with complete supply chains and manufacturing efficiency, can deliver in 10 to 12 months. In terms of technical standards, China is already a global leader in ultra-high voltage and high-voltage transformers. Regarding profit quality, overseas orders generally have higher gross margins than domestic ones. As overseas capacity expands and localization deepens, this “technology premium for high gross margins” model remains sustainable. Transformers have become a “hard currency” in the global energy transition.

Emergence of power “sales agents”

It is worth noting that after traditional power stocks like ultra-high voltage and smart distribution networks have risen to their peak, gas turbine stocks have gained prominence as the “sales agents” of power in the secondary market, with many reaching new highs.

For example, Ping An Ding Yue and Ping An Xin An, which have strong holdings in Jereh Group, a company capable of delivering complete gas turbines and maintaining stable cooperation with Siemens, Baker Hughes, and others. After signing large orders in North America, their stock prices have surged over 252% since late last year, with over 70% gains just this year. By the end of last year, 156 funds held these stocks, with some like Harvest Multi-Asset and Morgan Stanley Quality Life selecting them as top holdings.

Additionally, Huadong Gas Turbine, a domestic leader in high-temperature gas turbine blades, has achieved mass production of heavy-duty turbine hot-end blades. Driven by strong demand for gas turbines, its stock price has increased over 60% this year. By the end of last year, 60 funds held this stock.

Recently, a fund manager from a North China public fund pointed out that under ongoing energy tension, the expanding power gap has led to multiple technical routes. Self-built power sources are becoming a major trend, with gas turbines favored for their quick response, high power adaptability, lower generation costs, and high reliability, making them the preferred main power source for AI data centers (AIDC).

Some analysts also noted that the industry was in a downturn in recent years, with global manufacturers not expanding capacity on a large scale. Now, with demand suddenly exploding, supply cannot respond quickly. Over the next 3–5 years, the supply-demand gap will continue to widen, and the shortage of equipment will persist.

“A lot of overseas OEMs still have high order backlogs and clear expansion plans, so the global supply chain for domestic gas turbine component companies remains relatively certain,” said a fund manager during recent research.

(Article source: Securities Times)