GE Vernova's Data Center Order Surge Masks Deep Valuation Concerns

What happened

GE Vernova more than tripled its direct data center orders in 2025, pushing total backlog to $150 billion as reported by The Motley Fool. However, the DeepValue master report rates the stock a STRONG SELL, noting it trades at ~55x 2025 EBITDA and ~43x EPS, pricing in flawless execution of aggressive 2026-2028 margin and free-cash-flow targets. This backlog growth, while impressive, is largely driven by services with long conversion timelines, and 2025 free cash flow of $3.7 billion relied heavily on $4.1 billion in working-capital inflows from advances rather than sustainable earnings. Critical risks persist, including the Wind segment's $0.6 billion EBITDA loss, tariff headwinds of $300-400 million annually, and rising competition in electrification from peers like Siemens Energy. Thus, the current valuation offers no margin of safety, demanding perfect performance to justify the premium despite positive order momentum.

Implication

The surge in data center orders confirms near-term demand but does not mitigate core valuation risks, as GE Vernova must achieve ambitious margin expansion to 20% EBITDA by 2028, which is already fully priced in. Any deviation, such as Electrification book-to-bill ratios falling below 1.3x, Power margins stalling, or Wind losses exceeding guided levels, could trigger significant multiple compression from current elevated levels. Investors should closely monitor quarterly reports for early signs of execution slippage, working-capital normalization, or competitive pressures. Given the STRONG SELL rating with high conviction, better entry points are likely to emerge if growth moderates or underlying risks materialize, making current prices unattractive for new investment.

Thesis delta

The news article reinforces the bullish narrative around AI-driven power demand but does not alter the DeepValue report's core thesis. The thesis remains unchanged: GE Vernova is overvalued, with its stock embedding near-perfect execution of aggressive targets while underestimating Wind drag, tariff risks, and competitive intensity. No shift is warranted; investors should still avoid or trim positions at current levels, awaiting clearer evidence of sustainable margin and cash flow improvement.