Meet the Monster Stock that Continues to Crush the Market

GE Vernova's (GEV -2.70%) stock is up 166% since its listing in the spring, marking an incredible turnaround for a business that was once the problem child of the former General Electric. Here's why the stock has outperformed and what to expect from the company in the coming years. 

GE Vernova is set for a bright future

Successful investments often occur when a stock's narrative changes regarding its long-term growth outlook. That's arguably what's happened throughout this year, and it's not hard to see other examples in the marketplace that reflect the same changes positively impacting GE Vernova. 

Data source: GE Vernova presentations. EBITDA= earnings before interest, taxation, depreciation, and amortization.

GE Vernova power segment

As previously discussed, there's a growing recognition that the clean energy transition, although still ongoing, will take longer than expected. That's excellent news for GE Vernova's core power segment (whose main profit generator is gas turbine equipment and services). After years of speculation over the decline of the importance of gas as an energy source, there's a new recognition that it has a crucial role in the clean energy transition and will be a part of the energy mix for decades, not least as it's reliable and cost-effective compared to the intermittent nature of renewable energy. 

Moreover, the market is moving towards GE's heavy-duty gas turbines, including its flagship HA turbines, where it can expect many years of higher-margin services revenue. The improvement in orders is in the chart below, and CFO Kenneth Parks noted on the recent earnings call that "Based upon the backlog, we're funding capacity expansion from customer orders and related down payments to enable delivery of 70 to 80 heavy-duty gas turbines annually starting in 2026."

Data source: GE Vernova

GE Vernova is also a player in the small modular reactor (SMR) market that's attracting a lot of interest following Alphabet's (Google) deal to purchase nuclear energy from Kairos Power and Amazon.com's agreement to invest in SMRs.

GE Vernova electrification segment

The explosion in AI-related power demand means expectations for spending on power generation and electrification solutions have also improved. That supports gas turbine orders for GE Vernova and also means its second-largest segment, electrification (transmission & distribution, and storage solutions), is also generating robust revenue and order growth. 

The strong increase in orders over the last year or so means the electrification backlog (remaining performance obligations) stood at $21.9 billion at the end of the third quarter, compared to about $6 billion at the end of 2022. Management expects electrification revenue to grow at a high-teens rate in 2024 with EBITDA margin at the upper end of its high-single-digit guidance.

Image source: Getty Images.

GE Vernova wind segment

The renewable energy segment is more mixed. On the plus side, the onshore wind business is profitable and expanding margins, and CEO Scott Strazik expects more margin expansion in onshore in 2025. However, the profits at onshore wind aren't offsetting ongoing losses in the offshore wind business, and GE Vernova needs to work through problematic offshore wind contracts. 

The issues at offshore wind highlight the emerging cost and logistics difficulties associated with renewable energy. They also speak to the increasing demand for GE Vernova's power segment—by some distance, its most important segment. 

Is GE Vernova a stock to buy? 

The stock has benefitted from improving investment and sentiment toward gas while surging investment in electric transmission & distribution, which has led to increased orders in its electrification segment. 

Image source: Getty Images.

The increased installed base in power, plus the growing turbine orders, ensure long-term earnings and cash flow growth. At the same time, the massive backlog in electrification also guarantees revenue growth in the coming years. Meanwhile, the wind segment is improving profitability. Everything points to a bright future. 

With the stock now trading on 53 times the high end of its 2025 free cash flow guidance f it's hard to argue it is a raging buy right now. Still, investors should look out for the trading update on Dec. 10 for details on its multi-year outlook. It makes sense to wait to hear that before buying in at these levels.