J.P. Morgan: AI electrical equipment stocks may rebound from oversold levels, but caution still warranted for the sector as a whole

J.P. Morgan offered a seemingly contradictory set of judgments in its latest ratings adjustment for the electrical equipment sector: AI-related stocks could see sharp rebounds from oversold levels, but caution should still be maintained for the electrical equipment and diversified industrials sector as a whole. On individual stocks, GE Vernova (GEV.US) had its price target cut from $1,035 to $1,000 with an "Overweight" rating maintained; Vertiv (VRT.US) was given a "Neutral" rating and a $240 price target; Hubbell (HUBB.US) had its price target cut from $486 to $470 with a "Neutral" rating maintained. J.P. Morgan's Latest Assessment Based on Tuesday's closing prices, the implied upside for the three new price targets varies widely: GEV about 25%, VRT about 23%, and HUBB only 7%. Sell-side consensus is notably more optimistic. Koyfin data shows that of the 38 analysts covering GEV, 33 have "Buy" or "Strong Buy" ratings, with 12-month price targets ranging from $940 to $1,400 and an average of $1,182.83; for VRT, 27 of 30 are bullish, with a range of $250 to $427 and an average of $337.54; HUBB is the most divided, with 8 of 15 bullish and 7 at "Hold," a range of $486 to $600 and an average of $538.85. Reasons for Caution: The Upswing Has Passed, and Capacity Expansion Becomes a Price Risk According to the report, J.P. Morgan's core judgment is that the strong upswing in AI capital expenditure from 2024 to 2026 has passed, and the current period is on the edge of the fourth year of the upcycle; rising interest rates have also raised the return threshold for data center projects. The report expects organic sales of data center-related electrical equipment to still grow 50%60% in 2027, with most demand already in backlog, but growth will slow, and sales growth will decline markedly in 2028. Data shows global data center new installations of about 35GW in 2026 (+86% year over year), 63GW in 2027 (+81%), and 77GW in 2028 (+24%)installations are still increasing, but growth is falling from over 80% to about 20% within a year. More critically: equipment makers' capacity expansion means that once demand weakens, prices could come under rapid pressure. The report also flagged two vulnerabilitiesdeteriorating free cash flow and fragile financing structures, as well as product transition risks from changes in liquid cooling and 800VDC architectures. Buy-side sentiment has clearly cooled, but J.P. Morgan said that because share prices have fallen too quickly recently, it is not yet downgrading ratings to "Underweight." Barbell Strategy On specific positioning, J.P. Morgan adopted a barbell structure: on the buy or overweight side are GEV, Trane Technologies (TT.US), FPS, nVent (NVT.US), Regal Rexnord (RRX.US), and SPX Technologies (SPXC.US); the neutral side includes Carr (CARR.US), HUBB, Eaton Corp. Plc (ETN.US), Johnson Controls International plc (JCI.US), and VRTthe latter two were downgraded to neutral. Before This, Share Prices Had Already Fallen This round of caution did not come out of nowhere. In late October, SoftBank disclosed a $3.7 billion charge due to adjustments to its U.S. AI data center equipment procurement strategy, involving non-refundable prepayments and contract modifications. GE Vernova fell nearly 10% in early trading that daythe market's interpretation at the time was that AI data center developers might be scaling back power infrastructure investment. J.P. Morgan analyst Julian Mitchell called it a negative signal for power equipment demand, but also noted that SoftBank's statement does not yet prove that GEV's orders will be affected; company management recently also said there has been no abnormal deterioration in the order pipeline. Two Company-Level News Items On company-specific news, GE Vernova announced on November 10 a $34.5 million investment to expand its transformer plant in Shreveport, Louisiana, to meet growing demand for grid equipment. The expansion is expected to add 175 direct jobs and about 185 indirect jobs; the plant currently has more than 630 employees, and capacity is expected to reach full utilization in 2028. The investment is part of the company's plan to invest nearly $1.3 billion in U.S. manufacturing bases and R&D centers between 2025 and 2028. Vertiv announced on November 4 a three-year strategic agreement with Infineon to secure supplies of silicon and silicon carbide power semiconductors for its global power product portfolio, covering 800VDC power systems, aiming to ensure supply continuity as AI data center demand rises and the company expands capacity. Stocktwits data shows that year to date, VRT is up more than 17%, GEV is up more than 22%, and HUBB is down more than 3%. On the Stocktwits platform, retail sentiment toward GEV and VRT remains "Neutral," with GEV discussion volume at "High"; sentiment toward HUBB turned "Bullish" over the past 24 hours.