Goldman Sees 45% Gain in Stocks Amid $858B Electric Surge

Key Takeaway

• Goldman Sachs forecasts a 50% rise in Europe's power demand over the next decade, driving an $858 billion investment in infrastructure.
• E.on, SSE, and Elia identified as top picks with up to 45.5% upside potential due to the electric boom; First Solar also highlighted with a 50% upside.
• Major tech firms like Microsoft commit to renewable energy for data centers, indicating strong sector growth and investment opportunities.

Surge in Power and Data Center Demand

Europe is on the brink of a significant increase in power demand, expected to rise by as much as 50% over the next decade, reversing the trend of stagnation since 2008. This forecast comes from Goldman Sachs analysts who also predict a substantial investment of 800 billion euros in Europe's power transmission and distribution infrastructure. This investment is a response to years of under-investment and is anticipated to trigger secular organic growth in power grids and renewables. The analysts highlight that this inflection in revenues is likely to have a considerable impact on corporate profits, especially in an industry characterized by elevated operational and financial gearing.

Goldman Sachs' Top Picks

Goldman Sachs has identified three European companies with significant upside potential in the next 12 months, thanks to the surging demand for power and data centers. E.on, with a target price set at 17 euros, is expected to benefit from Germany's electrification push and favorable retail margins. SSE, with a target price of 2,024 British pence, is recognized for its £20.5 billion capital expenditure plan focused on renewables and networks. Elia, with a 45.5% upside potential, is noted for its strong earnings growth potential, making it the fastest-growing EU utility facility in Goldman Sachs' coverage.

First Solar's Bright Outlook

First Solar is another company poised for significant growth, with Goldman Sachs raising its stock price target to $268, indicating a 50% upside. This optimism is driven by the surging electricity consumption from data centers, with First Solar's management considering the addition of incremental factories as a key growth catalyst. The company's recent performance, including a net income surge to $236.6 million, underscores its strong position in the market. First Solar's appeal is further bolstered by its status as a preferred supplier for U.S. customers seeking domestically produced modules, with major tech companies committing to carbon-free energy for their data centers.

Industry-Wide Renewable Energy Commitments

The renewable energy sector is witnessing significant commitments from major corporations, with Microsoft investing over $10 billion in renewable energy capacity to support its data centers. This move aims to power 1.8 million homes and bring 10.5 gigawatts of generating capacity online, highlighting the tech industry's push towards sustainable energy solutions. Additionally, Super Micro's financial performance, with earnings surpassing expectations, reflects the growing demand for AI server markets and the company's competitive position in providing Nvidia GPU-equipped servers for AI applications.

Street Views

• Goldman Sachs Analysts on E.on (Bullish on E.on):

  "Goldman is bullish on electric utility company E.on and just raised its target price by nearly 3% to 17 euros. That gives the German stock — which is on Goldman’s conviction list — about 35% potential upside."

• Goldman Sachs Analysts on SSE (Bullish on SSE):

  "Scottish energy giant SSE is on Goldman’s radar following its recent update confirming 'its story of renewed growth.' The company now details a £20.5 billion [$25.67 billion] capex plan over FY23-27 (run-rate up c.60% versus the November 2021 plan), driven by higher investment in renewables and networks."

• Goldman Sachs Analysts on Elia (Bullish on Elia):

  "Also on Goldman’s list is Belgian transmission systems operator Elia.The company stands out thanks to its 'strong earnings growth potential as the fastest growing EU utility facility in our coverage.'"