The bull market for electrical equipment is "still in the early to mid-stage," JP Morgan: The upgrade of the U.S. power grid has not yet started, and Chinese companies have breakthroughs in the potential for the U.S. market

JP Morgan stated that although the global power equipment industry has outperformed the market for three consecutive years, the industry is still in the early to mid-stage, and the super cycle of power equipment is far from over. The demand for power in data centers will become a key bottleneck, and Asian companies, especially those from South Korea and China, will continue to benefit from the structural demand growth in developed markets such as the United States.

According to the news from the Chasing Wind Trading Desk, JP Morgan analysts reported on November 18 that AI-driven growth in power consumption is accelerating. By 2028, the global installed power capacity of AI data centers is expected to grow from 117 gigawatts to approximately 242 gigawatts, with a compound annual growth rate of 27%.

In the United States, the installed capacity of data centers is expected to grow at a compound annual growth rate of over 15%, increasing from 42 gigawatts in 2024 to 100 gigawatts by 2030.

At the same time, the U.S. power grid infrastructure faces severe challenges. U.S. utility companies are expected to invest $1.1 trillion from 2025 to 2029 in power generation, grid upgrades, and expansions, with utility capital expenditures expected to reach approximately $208 billion in 2025, a year-on-year increase of 17%.

Despite the explosive demand, the supply-side capacity expansion is unusually "disciplined." The delivery cycle for large power transformers (LPT) has now extended to 2-3 years, switchgear to over 1-2 years, and gas turbines require 3-4 years.

JP Morgan's statistics show that the new capacity added by major LPT manufacturers in the U.S. can only meet about 20-30% of the annual demand growth. This structural supply-demand contradiction supports equipment manufacturers in maintaining strong pricing power in the coming years, with product prices having risen over 60% since 2021, showing no signs of slowing down.

With the ongoing global transformer shortage and the gap in domestic capacity in the U.S., Asian and Chinese companies with cost advantages and delivery capabilities are expected to gain more market share in developed markets (DMs) and enjoy profit surges from high margins overseas.

Data Centers Will Ignite a 100GW New Gap

Global electricity consumption growth is accelerating, and AI data centers (DC) are the core driving force behind this trend.

JP Morgan's U.S. team predicts that to support the power demand of data centers, the U.S. will need approximately 100GW of new power generation capacity by 2028.

Globally, the installed power capacity of data centers is expected to grow from 117GW in 2023 to approximately 242GW by 2028, with a compound annual growth rate (CAGR) of up to 27%.

However, the supply side is "stagnant."

The net new capacity of U.S. baseload power (gas/nuclear) will remain flat until 2029, leading to a sharp tightening of reserve margins in key areas such as ERCOT (Texas) and PJM (Eastern), with some regions maintaining only around 20% or lower. This supply-demand imbalance is driving up electricity prices, with forward electricity prices in PJM West and East for 2026 having risen by approximately 15% since the beginning of this year. **

The U.S. Power Grid is "Extremely Fragile": Interconnection Queue Times Up to 7 Years, Transmission Network Construction Severely Lagging

The explosive growth of data centers is hitting the "wall" of America's aging power grid.

Due to grid limitations, the interconnection queue time for data centers is becoming desperate: in Virginia, the wait can be as long as 7 years; in certain areas of Texas, it may even reach 11 years.

The root of this bottleneck lies in the severe underinvestment in transmission networks in the U.S. over the past decade.

Data shows that in 2023-2024, the average new high-voltage transmission lines built in the U.S. each year is less than 700 miles, a dramatic drop compared to the construction pace of 4,000 miles per year in 2013. To achieve grid reliability goals, 5,000 miles need to be built each year in the future.

JP Morgan points out that the main demand for high-voltage power equipment currently still comes from the interconnection of renewable energy (accounting for over 70%), while the real "grid upgrade/replacement cycle" has not yet fully started. Currently, over one-third of the equipment in the U.S. power grid has been in use for over 30 years, but replacement demand only accounts for 20-25% of the current total demand. This means that once the replacement demand for aging infrastructure accelerates in the coming years, the equipment shortage will further intensify.

Supply Chain "Tightness" Becomes the Norm: Capacity Expansion Limited, Prices Remain High

Despite the explosive demand, the supply side's capacity expansion is unusually "disciplined." The delivery cycle for large power transformers (LPT) has now extended to 2-3 years, switchgear over 1-2 years, and gas turbines require 3-4 years.

Major manufacturers (such as Hyundai Electric) have announced expansion plans, but are limited by a shortage of skilled labor and raw material supply, leading to slow capacity release.

JP Morgan's statistics show that the new capacity from major LPT manufacturers in the U.S. can only meet about 20-30% of the annual demand growth. This structural supply-demand contradiction supports equipment manufacturers in maintaining strong pricing power in the coming years, with product prices having risen over 60% since 2021, showing no signs of slowing down.

Targeting 2027 Profits, Chinese Companies Welcome Opportunities to Go Abroad

Although the power equipment sector has seen significant gains since the beginning of the year, with valuation multiples increasing, JP Morgan believes the market still underestimates the industry's long-cycle attributes.

The current order backlog is sufficient to support the revenue of leading companies for the next 2.5 to 2.8 years, with extremely high visibility of profits. Therefore, the valuation framework should shift from focusing on short-term price-to-earnings (P/E) ratios to anchoring profitability in 2027.

JP Morgan emphasizes that the potential of Chinese companies (such as Siyuan Electric) to break into the U.S. market is one of the factors that the current market has not fully priced in. With the ongoing global transformer shortage and the gap in domestic production capacity in the U.S., Asian and Chinese companies with cost advantages and delivery capabilities are expected to gain more market share in developed markets (DMs) and enjoy profit leaps from high overseas margins