Expanding the Coverage Universe
As the structural dynamics driving data center power demand have become clearer over the past 18 months, we identified a gap in our coverage: the upstream grid infrastructure that must be modernized to deliver power to these facilities.
Our Technology pool has covered the data center layer well — power electronics, UPS systems, and thermal management. But the constraint begins further upstream, at the transmission and distribution level, where decades of underinvestment have left the grid structurally unprepared for the load growth that AI infrastructure demands. These are not Technology equities in the conventional sense. They trade in the Utilities and Industrials sectors, and they require a different analytical framework than semiconductor or hyperscaler companies.
Beginning in Q1 2025, we are formally expanding our Commodities pool coverage to include grid modernization investments across three subsectors.
Three New Coverage Areas
Regulated utilities with data center load exposure are the first category. Utilities serving the primary data center markets — Northern Virginia (Dominion Energy), Phoenix (APS and SRP), and the greater Atlanta corridor — are experiencing load growth they did not forecast in their integrated resource plans. This unexpected demand provides a regulatory tailwind for capital expenditure recovery and rate base expansion. We are developing coverage on five utilities with above-average data center load exposure as a percentage of total retail sales.
Independent power producers (IPPs) are the second category. The deregulated power markets where IPPs operate — PJM, ERCOT, MISO — are seeing demand growth that puts upward pressure on capacity prices and energy prices. IPPs with generation assets in constrained markets, or with the ability to develop behind-the-meter generation for direct data center sale, are in an unusually favorable commercial position. We will be initiating coverage on two IPPs in Q2 2025.
Transmission infrastructure is the third category. Long-distance transmission development is one of the few categories in the US power sector that can earn returns without rate regulation in some markets. Companies with transmission project pipelines in the interconnection queue have option value that is not yet fully reflected in market valuations. We are adding transmission-focused holding companies to our coverage list.
Research Process for the New Coverage Area
The research process for grid modernization investments differs from our semiconductor and hyperscale coverage in important ways. These businesses are heavily regulated, and regulatory outcomes — rate cases, integrated resource plan approvals, transmission cost allocation — drive a significant portion of the investment return.
We are developing analytical frameworks specifically for these businesses, focused on: rate base growth trajectories and regulatory lag, PPA structures for direct data center power sales, capacity market participation and pricing dynamics, and balance sheet positioning for capital-intensive build programs.
We expect to publish initial research on three specific names within this coverage expansion in Q2 2025. We will also publish a framework paper on how we think about valuing regulated utility investments through the lens of AI infrastructure demand — a framework we believe the market is not yet applying consistently.
Portfolio Implications
The expansion of our Commodities coverage does not immediately change portfolio positioning. We are in the research phase and will not initiate positions until we have completed thorough due diligence and valuation work. We expect to have initial position candidates identified by mid-Q2 2025.
We are building this coverage with the same rigor we apply to our semiconductor and infrastructure analysis. The Bottleneck-to-Ticker framework applies equally here: grid interconnection is a genuine bottleneck, the investment that resolves it is forced-spend rather than discretionary, and the beneficiaries are identifiable and tradeable. We expect this expansion to produce high-conviction positions over the next 12 to 18 months.
