The wave of AI combined with grid upgrades, Morgan Stanley declares: The U.S. transformer super cycle will continue until 2030.

The U.S. is in a transformer supercycle driven together by grid upgrades, a transition to renewable energy, and explosive growth in data centers.

According to Pursuit Wind Trading Platform, in a research note released by Morgan Stanley Mexico division analyst Jens Spiess in collaboration with teams across multiple global regions, the core view is this: the U.S. power grid is going through a supply-demand mismatch, and the severely imbalanced situation will persist at least until 2030. The market size for large power transformers (LPT) is expected to expand at an annual compound growth rate of roughly 14%, creating a steady multi-year window of excess profits for related manufacturers.

On the demand and supply sides, U.S. electricity demand is back on a growth track after being sluggish for 20 years. Aging infrastructure urgently needs to be updated. Large-scale grid connections of wind and solar bring new transmission needs. And on top of that, explosive data-center expansion—these forces together are pushing demand for high-power transformers (LPT) sharply higher, while domestic production capacity in the U.S. is far from keeping up. Since 2021, the apparent consumption of large power transformers in the U.S. has grown by more than 3x, while domestic output in the same period has increased by less than 60%. Import reliance has climbed from about 70% in 2021 to 85% or more.

The highest earnings leverage is for “pure-play” transformer manufacturers. In a bull-market scenario, driven by LPT market growth, by 2027, the per-share earnings forecasts for Modern Electrical, GEV, WEG, LS Electric, and Sienyuan Electrical have upside of 8%, 6%, 5%, 4%, and 4%, respectively. Each company locks in profits at high levels through price adjustment clauses in orders, with current order backlogs of about 3 to 5 years; the high-profit condition is expected to remain at least through 2030.

On the demand side: not just grid aging

U.S. grid aging is the starting point of the problem, but it is not the whole story. Data from the U.S. Department of Energy in 2024 shows that among in-service distribution transformers, about 55% have been in use for more than 33 years—beyond their normal service life.

The bigger variable comes from a fundamental shift in the structure of power demand. For the prior 20 years, U.S. power demand was nearly flat (annual compound growth of about 0.4%). Morgan Stanley now forecasts that before 2035, the annual growth rate will reach 2.6%, and this forecast number has already been raised multiple times over the past two years.

About 78% of incremental demand comes from data centers. Their electricity use is expected to grow at about 30% per year over the next five years, raising the share of total U.S. electricity consumption from about 6% in 2024 to about 18% in 2030. It is expected that from 2025 to 2028, U.S. data centers will add roughly 74GW of power demand, creating a power supply gap of 9 to 18GW.

The rapid expansion of renewables pushes transformer demand up from another dimension as well. Distributed, multi-site generation requires step-up transformers at each connection point. The larger the installed capacity, the more transformers are needed. It is expected that by 2035, the share of renewables in the U.S. generation mix will rise from about 23% in 2024 to about 32%, with wind and solar accounting for about 53% of total new installed capacity of 759GW.

Capacity can’t catch up with demand: new plants may not be ready until 2027 at the earliest

Just how severe is this supply-demand mismatch? In 2024, U.S. domestic LPT output was only about 200 to 300 units. To support the incremental generation installed capacity for 2025 to 2030 alone would require about 4,300 LPT units—that is 2 to 3 times U.S. domestic production (assuming no capacity expansion). If you include needs for grid modernization and microgrid upgrades, that number could be four times higher.

Companies such as Siemens Energy, Modern Electrical, Eaton, Hitachi Energy, Prolec GE, and others have already announced capacity expansion in North America, with investment amounts ranging from tens of millions to more than $1 billion. However, building a new transformer factory typically takes 1 to 3 years to come online. The delivery lead times for manufacturing equipment can sometimes reach 6 years. The highly customized nature of the products further lengthens production cycles. Most incremental capacity will only be in place by 2027 to 2029, at which time the market will still maintain a supplier-dominant pattern.

Transformer prices have risen cumulatively by about 80% over the past five years, but the upward momentum is slowing. WEG, GE Vernova, and management at Siemens Energy have all mentioned in recent earnings call transcripts that pricing is trending toward stability. This is not a turning point in profit margins. The manufacturers have already locked in high profits in the front-loaded backlog through order-based price adjustment mechanisms that cover shocks from raw material costs, inflation, and tariffs. The high-profit window is expected to last at least until 2030.

In addition, Morgan Stanley upgraded the ratings of seven companies including Modern Electrical. Modern Electrical has the highest North America exposure, with orders covering up to 2028, and in the fourth quarter the operating profit margin hit a record 27.6%. GE Vernova’s order backlog is $30.5 billion, with visibility extending to the end of the decade. Eaton’s electrical business backlog hit a record high of $15.3 billion, with capacity expansion projects rolling out intensively. Siemens Energy’s Grid segment backlog is €21.4 billion; profit margins are continuing to expand, and the benefits have not yet been fully realized. Sienyuan Electrical benefits from global supply tightness: overseas orders have been growing rapidly and continue to penetrate mature markets. CG Power plans to expand large transformer capacity to five times the current level and has already secured multi-billion-dollar orders from U.S. data centers. LS Electric benefits from AI data-center distribution power demand; it expects an EPS CAGR of about 45% from 2025 to 2028.

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