Grid upgrade infrastructure supercycle
Conviction: 86%
· Horizon: 10Y
· 2026-04-05
Transformer and switchgear shortages create durable pricing power
Electricity demand is rising while core grid equipment has multi-year lead times, limited Western manufacturing capacity, and severe supply shortfalls. Companies with proven ability to deliver transformers, switchgear, and related electrification hardware should benefit from backlog growth, pricing power, and sustained utility capex.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| ETN | Long | Eaton sits at the center of grid modernization with broad exposure to transformers, switchgear, breakers, and power distribution. Scarce manufacturing capability, expanding electrification demand, and a growing role in solid-state transformers support durable backlog, pricing power, and compounding earnings. | |
| POWL | Long | Powell is directly exposed to the shortage of switchgear and power control equipment that utilities and industrial projects cannot easily substitute away. A large backlog converting over the next year creates room for upside versus consensus if revenue and margin realization continue to outpace expectations. |
Material and cable bottlenecks can produce outsized second-order winners
Grid expansion cannot accelerate without GOES steel, copper-intensive components, and high-voltage cable hardware. Supply concentration, tariffs, long capacity build times, and complex manufacturing processes can allow select suppliers and accessories makers to capture disproportionate value as the buildout broadens.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| CLF | Long | Cleveland-Cliffs controls strategically important domestic GOES supply, a critical input for power transformers that remains structurally constrained. Even partial improvement in profitability can drive strong equity upside because transformer demand is rising into a market where new domestic capacity is slow and difficult to add. | |
| PLPC | Long | Preformed Line Products supplies critical accessories and hardware used across transmission and cable deployments, giving it leverage to both onshore grid expansion and selected HVDC-related buildout. If operating margins normalize higher while backlog converts, earnings power can scale faster than the market currently discounts. |
Grid software and interconnection optimization become essential as queues lengthen
The biggest near-term constraint is not only physical equipment but the inability to connect new generation and loads quickly. Software, smart metering, distributed intelligence, and grid-enhancing technologies that raise utilization of existing assets can reduce project attrition and earn higher multiples as utilities digitize operations.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| ITRI | Long | Itron provides the metering, communications, and software layer that becomes more valuable as the grid grows more dynamic and capacity-constrained. Rising recurring revenue, stronger distributed intelligence adoption, and a shift toward analytics can support a re-rating from hardware supplier to grid software platform. | |
| SHLS | Long | Shoals holds a strong position in electrical balance-of-system components that are essential for utility-scale solar, storage, and EV charging projects to connect efficiently to the grid. Strong market share, attractive valuation, and leverage to future solar deployment create a favorable setup if interconnection activity resumes. |
Physical buildout and resilience spending extend the opportunity beyond core equipment
Even with equipment bottlenecks, utilities still need contractors, structural hardware, towers, poles, and backup power to keep the system operating under rising loads. Companies with labor scale, utility relationships, and critical structural or resilience products should participate in a long-lived, non-discretionary capex cycle.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| MYRG | Long | MYR Group is a direct beneficiary of new transmission and substation work because it designs, builds, upgrades, and maintains the physical network utilities require. As approvals turn into projects, workforce scale and execution capability can convert a growing pipeline into sustained earnings growth. | |
| VMI | Long | Valmont supplies poles, towers, and structural hardware that form the backbone of transmission expansion, and strong backlog signals durable demand visibility. As utility customers book capacity further out, the business gains pricing support and a clear runway for continued infrastructure-led growth. | |
| PSIX | Long | Power Solutions provides backup generation that becomes more valuable when grid constraints collide with fast-rising data center demand. If customers continue favoring cleaner and cheaper natural-gas solutions over diesel, strong EBITDA growth can support meaningful upside from a still modest valuation. |
Themes
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Broad Commodity Strength Continuation
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Stabilization Into Bull Trap
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Sticky Inflation Keeps the Fed Trapped
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Oil Volatility Around Iran Ceasefire Talks
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