Filed under: Sector Trends · Tech & AI
Let’s break down the data center power trade.
In my previous post, I walked through the big picture of data center electricity demand. If you read that first, this analysis will click faster. (I’ll leave the link at the bottom.)
The market is already treating data center power plays—including Small Modular Reactors (SMRs)—as a “high-conviction” theme. You don’t have to look far for proof. Looking at global manufacturing hubs like South Korea, SMR-linked names like Doosan Enerbility and grid equipment leaders like Hyosung Heavy Industries both staged strong rallies last year.
Even though the “power” sector sounds complicated, the industry boils down to three core activities:
Make electricity
Move electricity
Manage electricity
1. Making Electricity (Generation)
Just like I covered last time, the generation mix is evolving:
Near-term: Natural gas generation
Mid-term: Renewables + Energy Storage Systems (ESS)
Long-term: Nuclear + SMRs
Key Insight: Stock prices aren’t just about current earnings; they reflect expectations. That’s exactly why SMR names draw so much attention and command a premium even before full commercialization.
2. Moving Electricity (Transmission)
This includes everything related to transmission lines, substations, distribution, and overall grid infrastructure.
In many cases, building the power plant is not the slow part. Connecting and delivering power is often the bottleneck. That’s why the real pinch point in the “data center power problem” frequently shows up here.
3. Managing Electricity (Efficiency)
At this point, it’s not news that data centers are power-hungry. Beyond the chips themselves, you’re dealing with a whole stack:
It’s not only about generating more electricity. It’s also about using less per unit of compute and removing heat efficiently.
For a bigger picture, see our AI infrastructure investment guide.
How Far Can This Theme Run? (Historical Case Studies)
To estimate where “data center power stocks” might go, it helps to look at two historical power themes from the 2010s.
Case ①: The Natural Gas Boom (2010s)
Back in 2000, the U.S. relied heavily on coal. Then, drilling technology improved, shale gas supply surged, and prices fell. Natural gas generation overtook coal, creating a rare “triple win”: reduced emissions, improved efficiency, and flexible facilities.
The Market Move:
Let’s use EQT, one of the largest U.S. natural gas producers, as a reference.
EQT rallied hard during the shale boom.
Near the peak (pre-2015), its return versus 2000 levels reached roughly +700%.
Note: The rally ended when geopolitical supply shifts (Saudi production) crashed prices, but the initial run was massive.
Case ②: The Renewables Rally (2010s)
Long before SMRs were the “hot trade,” renewables were the narrative.
The Market Move:
Look at NextEra Energy (NEE), a flagship U.S. renewables player.
From 2010 to 2022, NEE grew with very little “existential” fear, rising roughly +600%.
While higher interest rates in 2023 caused a correction, the recent data center demand is pushing the stock back toward prior highs.
Why This Time Is Different: Incremental Demand
Before we get too excited comparing those examples, there’s a key difference.
In 2010, total U.S. electricity generation didn’t really increase; the mix just shifted (Coal ↓, Gas/Renewables ↑).
The AI era is different.
This isn't just substitution; it is potential incremental demand growth.
(Historical footnote: In the 1990s, when electricity generation grew about 2% per year, GE—a dominant power equipment player—produced a true “multi-bagger” run.)
The Verdict: SMRs Have the Highest Upside Potential
If you’re looking for the steepest growth curve, SMRs are the obvious candidate.
The most asymmetric “earnings curve” likely lies here because SMRs aren’t fully commercial yet, but the market expects them to capture a meaningful share of future supply.
The Typical Cycle for New Tech:
Stage 1: News, announcements, hype (High Volatility).
Stage 2: Orders, delivery timelines, fundamental anchoring.
SMRs are currently in Stage 1. This means risk is high, but so is the potential reward before the "real rally" based on fundamentals begins.
Epilogue: Patience is the Price
There’s one crucial detail I saved for last. Those “+600%” and “10-bagger” outcomes didn’t happen overnight.
SMR names could easily be the same kind of long-duration trade. If you want the big payoff, the market demands time.
The Bottom Line:
Power was rarely the main character in prior market cycles. But in the AI era, money ultimately gets generated at power plants and flows through the grid. Politically, you rarely see an industry this aligned with both policy support and long-term capital spending.
Disclaimer: This post is for informational purposes only and does not constitute investment advice. Investing involves risk.
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