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

Ask AI · How transformer manufacturers can respond to capacity bottlenecks and maintain high profits?

The United States is in the midst of a transformer supercycle driven by grid upgrades, renewable energy transitions, and explosive growth in data centers.

According to ChaseTrade, Morgan Stanley Mexico analyst Jens Spiess and teams from multiple regions worldwide released a research report, with the core conclusion: the U.S. power grid is experiencing a mismatch between supply and demand, and this severe imbalance will last at least until 2030. The large power transformer (LPT) market is expected to expand at an approximate 14% compound annual growth rate, providing a sustained multi-year window of excess profits for related manufacturers.

From both supply and demand perspectives, U.S. electricity demand has returned to growth after 20 years of stagnation. Old infrastructure urgently needs upgrading, large-scale wind and photovoltaic grid connections create new transmission needs, combined with explosive data center expansion—these forces together drive demand for large power transformers (LPT), while domestic capacity in the U.S. lags far behind. Since 2021, the apparent consumption of large power transformers in the U.S. has increased more than threefold, while domestic production has grown less than 60% in the same period, and import dependence has risen from about 70% in 2021 to over 85%.

The highest profit elasticity is for “pure transformer” manufacturers. In a bull market scenario, driven by LPT market growth, the earnings per share (EPS) forecasts for Modern Electrical, GEV, WEG, LS Electric, and Siyuan Electric could each see upside potential of 8%, 6%, 5%, 4%, and 4%, respectively, by 2027. These companies lock in profits through price adjustment clauses in orders, and current order backlog is about 3 to 5 years, with high profitability expected to last until at least 2030.

Demand side: It’s not just about aging power grids.

The aging of the U.S. power grid is the starting point of the problem, but not the whole story. U.S. Department of Energy data for 2024 shows that about 55% of in-service distribution transformers are over 33 years old—exceeding normal service life.

A bigger variable comes from a fundamental shift in the structure of electricity demand. U.S. electricity demand had nearly stagnated over the past 20 years (annual growth rate of about 0.4%), but Morgan Stanley now forecasts an annual growth rate of 2.6% before 2035, with this forecast being revised upward multiple times over the past two years.

Approximately 78% of incremental demand comes from data centers, whose electricity consumption is expected to grow at about 30% annually over the next five years, increasing their share of total U.S. electricity use from about 6% in 2024 to roughly 18% by 2030. It is estimated that between 2025 and 2028, U.S. data centers will add about 74 GW of electricity demand, creating a supply gap of 9 to 18 GW.

The rapid expansion of renewable energy also pushes transformer demand from another dimension. Distributed, multi-site power generation requires step-up transformers at each connection point. The larger the installed capacity, the more transformers are needed. By 2035, renewable energy’s share in the U.S. power generation mix is expected to rise from about 23% in 2024 to approximately 32%, with wind and solar accounting for about 53% of the 759 GW of new capacity installations.

Capacity cannot keep up with demand: new factories will only come online by 2027 at the earliest.

How severe is this mismatch? In 2024, U.S. domestic LPT production was only about 200 to 300 units, which is only enough to support the added power generation capacity from 2025 to 2030—about 4,300 units needed—twice or thrice the current domestic output (assuming no capacity expansion). If we include grid modernization and microgrid upgrades, this number could quadruple.

Companies like Siemens Energy, Modern Electrical, Eaton, Hitachi Energy, and Prolec GE have announced expansion plans in North America, with investments ranging from tens of millions to over $1 billion. However, building a new transformer factory typically takes 1 to 3 years to start production, and equipment delivery can take up to 6 years. The highly customized nature of these products further extends production cycles. Most new capacity will only come online around 2027 to 2029, and the market will still be dominated by suppliers at that time.

Transformer prices have risen about 80% over the past five years, but the price increase momentum is slowing. WEG, GE Vernova, and Siemens Energy management have recently mentioned in earnings calls that prices are stabilizing. This is not a profit margin turning point—companies have already locked in high profits through price adjustment mechanisms in orders (covering raw materials, inflation, and tariffs), and the high-profit window is expected to extend at least until 2030.

Additionally, Morgan Stanley has upgraded ratings for seven companies including Modern Electrical, with Modern Electrical having the highest North American exposure, order coverage until 2028, and a record quarterly operating profit margin of 27.6%; GE Vernova has an order backlog of $30.5 billion with visibility extending to the end of the decade; Eaton’s electrical business backlog hit a record $15.3 billion, with capacity expansion projects rapidly underway; Siemens Energy’s Grid division backlog is €21.4 billion, with profit margins continuing to expand but not yet fully realized; Siyuan Electric benefits from global supply tightness, with overseas orders growing rapidly and penetrating mature markets; CG Power plans to expand large transformer capacity to five times the current level, having secured billion-dollar orders from U.S. data centers; LS Electric benefits from AI data center power distribution demand, with an expected compound annual EPS growth rate of about 45% from 2025 to 2028.