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Still plenty of runway ahead

A new framework for assessing demand

To gauge the direction of the power infrastructure/equipment cycle, market participants have relied mostly on a range of traditional indicators, including order intake, the US transformer PPI, and trade data. However, each of these metrics has limitations as a leading indicator of industry conditions. The PPI is inherently backward-looking, as it reflects prices agreed under contracts signed several years earlier (and recorded only upon delivery), while order trends can vary significantly depending on individual companies’ sales execution and order-taking strategies. As such, relying on these indicators provides only a partial picture of the underlying cycle.

We believe a more fundamental approach is needed. To better assess underlying demand, we compiled interconnection queue data from six independent system operators (ISOs), four regional transmission organizations (RTOs), and 20 utilities across the US, where grid bottlenecks are particularly acute. These datasets include the scale and timing of interconnection requests, target completion dates, generation sources, and voltage classes. Because grid interconnection requires key power equipment such as transformers and circuit breakers, we believe these data provide a more direct measure of underlying demand than commonly used indicators.

Still plenty of runway ahead

Our analysis suggests that concerns about the current power equipment cycle nearing its peak are premature. Despite the surge in US transformer imports, demand for new grid connections continues to grow rapidly. Based on the scheduled completion dates of projects in the interconnection queue, we conclude that demand for power equipment should remain on a solid growth trajectory at least through 2030. As Europe, the Middle East, and developing markets follow the US in investing in data centers and grid expansion, the up-cycle should have room to run.

Beyond the duration of the up-cycle, investors should consider its eventual magnitude. Based on interconnection queue data, we project capacity seeking grid interconnection to grow from 357GW in 2025 to 648GW in 2028 (22% CAGR). Given that only around 52GW was connected in 2025, accommodating the capacity expected to seek interconnection in 2028 would require equipment supply to expand at least 10-fold. While current market valuations are largely anchored to 2027-28 forecasts, the earnings potential beyond that period remains underappreciated.

Investment strategy and top picks

We initiate coverage of the power infrastructure sector with an Overweight rating. We believe investors should focus on companies with: 1) portfolios centered on extra-high-voltage (EHV) equipment; 2) transformer-focused lineups capable of translating favorable conditions into margin expansion; 3) the ability to expand capacity in a timely manner to capitalize on visible demand; and 4) attractive valuations.

Our top pick is Hyosung Heavy Industries, followed by HD Hyundai Electric. Both firms have transformer-focused portfolios and are thus poised to benefit from accelerating power infrastructure investment. In particular, both have EHV production capabilities, positioning them to see additional order momentum as the 765kV market opens up. We expect both companies to deliver notable top-line growth from capacity ramp-ups for EHV transformers and distribution equipment. In addition, their valuations remain undemanding relative to the earnings growth potential from these capacity additions.