In my opinion, it’s hard to read the quotes provided after my notes here and not be very bullish on the long-term profitable growth opportunity in front of GE Vernova (NYSE: GEV). The main takeaways from GEV’s Q3:2025 earnings call are that (1) demand for gas turbines (in the power segment) remains strong and pricing power continues to accelerate, (2) the electrification segment is growing like gangbusters (orders in the quarter grew 102% year-over-year), (3) company-wide CapEx is expected to peak in 2026 driving a potential free cash flow growth cycle, (4) management is going to provide updated (read improved) guidance through 2028 at its December 9th investor day, (5) at that investor day GEV management is also going to share more details about why they “have so much confidence and conviction on how exciting this business is going to be through the next decade”, (6) GEV CEO Scott Strazik stressed that larger combined cycle gas turbines are superior to smaller gas turbines, diesel generators/engines, and even fuel cells because larger gas turbines “consume so much less fuel to produce so much more output over the medium to long term” and (7) GEV announced that it plans to acquire the remaining 50% of its Prolec joint venture (JV).
Prolec is one of the (if not the) largest manufacturer of transformers in North America, which are products that are in short supply and high demand. Prolec is a company that GEV knows intimately (because of its 30-year JV) that is expected to grow revenue organically at a low double-digit rate and that has 25% EBITDA margins (higher than GEV’s margins), so it is growing in-line with GEV and is immediately accretive to GEV’s overall margins before any synergies. As Strazik said on the call, “this transaction will add to our growth runway and to expanding margins ahead.”
The acquisition gives GEV full-control (and manufacturing capacity) over Prolec’s lower-volage transformers, which have a variety of uses including being installed outside and inside AI data centers (data centers account for 20% of Prolec’s revenue, up from 10% in 2024). On top of this, there are medium-term opportunities for cost synergies and longer-term revenue synergies as they begin to sell Prolec’s low and medium voltage transformers internationally.
GEV is funding the acquisition with 50% cash and 50% debt (so no equity dilution) and post closing, GEV will “remain in a significant net cash position” and maintain its investment-grade credit rating with a debt-to-adjusted EBITDA below 1x.
This Prolec acquisition is yet another example of how GEV’s management team gets creative with capital allocation. In the past this creativity has included divesting non-core businesses and selling off parts of businesses to reinvest in the faster-growing, higher-margin core and/or to boost net cash on the balance sheet. Other times the creativity took the form of acquiring component parts manufacturers to vertically integrate. And now the Prolec acquisition further demonstrates the creative and intelligent capital allocation of this management team. Acquisitions can be tricky, but GEV is attempting to somewhat de-risk the acquisition by buying a company it knows well (with a decades-long relationship) that also happens to be the leader in a vertical that is being powered by massive long-term tailwinds that is already in the process of increasing capacity to meet surging demand. And it’s paying a very reasonable price of only 14x this year’s adjusted EBITDA (before synergies) and only 9.4x 2028 expected EBITDA (once again before any synergies) for what Strazik calls a “world-class transformer business.”
GE Vernova’s Q3:2025 revenue increased 12%, organic revenue increased 10%, and adjusted EBITDA margins expanded 600 basis points year-over-year. Diluted EPS increased to $1.64, up from a loss of $0.35 in Q3:2024.
GE Vernova’s total backlog increased to $135 billion. Of the $135 billion, $54 billion is equipment backlog and $81 billion (or 60% of the total) is higher-margin services backlog. GE Vernova has 33 gigawatts (GW) of gas turbines in backlog and another 29 gigawatts of gas turbine slot reservation agreements (SRAs) that are not yet in orders or backlog. Total gas power equipment backlog and SRAs grew from 55 gigawatts in Q2:2025 to 62 gigawatts in Q3:2025, and the company now expects to approach 70 gigawatts of gas turbine commitments by the end of 2025. On the call GEV CFO Ken Parks stressed that the cash down payments GEV receives for gas turbine orders and slot reservations are “measurable” and “nonrefundable.” These down payments are a cash inflow to working capital and an important driver of GEV’s strong free cash flow conversion. In the third quarter GEV’s free cash flow conversion on GAAP net income was 161%.
On the Q3:2025 earnings call, Strazik reiterated that he doesn’t plan to consider increasing gas turbine capacity (CapEx) until the company has 80 GW to 100 GW of backlog (plus slot reservations), which is equal to four- or five-years worth of commitments because they expect to be at about a 20 GW annual run rate by the back half of 2026. Strazik is careful to not overbuild, instead focusing on delivering for customers that are waitlisted for product out to 2029. Strazik said that there is no reason to risk increasing capacity today because gas turbines are not the only component in the power generation and AI supply chain with a long lead time and because they are getting great economics (pricing power and higher margins) on the out-year backlog.
On GE Vernova’s Q1:2025 call, Strazik said (and he has reiterated since) that “we remain in the early stages of substantial margin expansion.” I see five major drivers of the margin and ROIC expansion opportunity over time…
GEV has $135 billion in backlog, but the margins on its out-year backlog are higher than the current business it is providing and billing to clients. Let me explain…GEV’s gas turbines (its largest business) are largely sold out until 2028 but demand is so high that customers are reserving slots out to 2029. This supply/demand imbalance gives GEV pricing power for its backlog years into the future.
GEV’s business is roughly spit 50/50 today between equipment and services, but 60% of its $135 billion in backlog is higher-margin services revenue.
Its wind business is currently losing money (has a negative margin). Once it completes about $2 billion to $3 billion in offshore wind backlog that was priced at a loss (is unprofitable), the margins in its wind business should inflect positive. It expects to complete most of this offshore backlog by 2026 (but I think some of this negative margin will drag into 2027).
A lot of companies claim to implement “lean” practices, but GEV has a true lean culture across SQDC (safety, quality, delivery, and cost) and gives internal case studies of how lean is leading to efficiencies across all aspects of its business and how lean is being used to aggressively manage working capital and to improve the cash conversion cycle.
GE Vernova is aggressively investing internally in AI, automation, and robotics to improve efficiency and productivity.
Management reiterated full-year 2025 guidance calling for revenue towards the “higher end” of $36 billion to $37 billion, adjusted EBITDA margins of 8% to 9%, and free cash flow of $3 billion to $3.5 billion.
As of now, GEV’s medium-term financial targets for 2028 call for organic revenue growth of high-single digits, adjusted EBITDA margins of 14% in 2028 (up from 5.8% in 2024), and for the company to generate cumulative FCF of $14 billion between now and then at a FCF conversion of 100%. It has committed to returning 1/3 of that $14 billion to shareholders through dividends and share repurchases. Well, that $10 billion of additional (unearmarked) capital creates optionality upside from either additional buybacks or M&A. Beyond that, additional optionality could possibly come from small modular reactors (SMRs), but that very likely won’t have a potential impact until 2030 and beyond. That’s fine, we’re long-term owners and like to see possible demand drivers years into the future.
But, on the Q3 call GEV management said that it will be updating its 2028 guidance (or at least portions of that guidance) at its upcoming investor day on December 9, 2025. Importantly (or impressively…I’m not sure what is the right descriptor), this will be the third time that GE Vernova’s management team has updated the investor community on its medium-term potential since March of 2024. It held its first investor day in March 2024 (a month before its spin-off from GE), then raised guidance 9 months later, and will be raising at least portions of its guidance yet again next month. In other words, GEV has not been able to raise guidance fast enough to keep up with end-market demand growth. This speaks to the large and important markets in which it is a global leader, but also to management’s ability to execute on this generational opportunity and to allocate capital intelligently. In my over 20 years of doing this I can’t remember another instance of a company increasing its longer-term guidance twice (after the initial investor day in March 2024) in such a short period of time. But as Strazik said on the call, “The reality is that business [particularly the electrification segment] has continued to outperform our own growth expectations really for 18 months” and that GEV’s future potential has grown even faster than the company’s reported performance since the spin-off from GE.
Scott Strazik is the CEO of a newly public company that happens to be, almost without question, an asset to the United State of America and one of the most important companies in the world, and at this point I am beyond impressed with his leadership. And I’d even go as far as saying that he is my favorite CEO in the Bastion Industrials and Infrastructure portfolio. Strazik and his team say the things (and do the things) that I wish all CEOs would say and do. He understands the outsized importance the company plays in the world and the outsized importance that building and nurturing the right culture from the beginning will have on the company’s long-term success at delivering for clients, employees, shareholders, and other stakeholders as well.
The culture that he is building is one based on employee safety (first and foremost), lean operations across all aspect of the business, strong profitability and free cash flow conversion, and wicked smart and thoughtful capital allocation that includes making small acquisitions to vertically integrate and increase capacity with minimal CapEx as well as divestitures and selling off parts of subsidiaries to build net cash and improve return on invested capital (ROIC) while also returning capital to shareholders. Strazik doesn’t chase FOMO (refusing to expand gas turbine capacity until the time is right), but he’s long-term ambitious. He wants GE Vernova to differentiate itself as one of the great industrial companies in the world, and I think that books will be written about his leadership one day.
GE Vernova has roughly 50% market share of gas turbines in the U.S. (and the world) and its equipment and grid software powers 25% of the world’s electricity. It has a large and growing installed base and its higher-margin services business should generate revenue equal to two to three times the revenue it generates from original equipment sales over the 30-year life of the equipment.
I think that GE Vernova is very early in a long-duration profit cycle that should be driven by the world’s insatiable demand for electricity. BloombergNEF estimates we need global grid investment of $15.8 trillion by 2050. The investment should be driven by not only AI data center demand, but also from onshoring of industrial production, the aging electrical grid that requires repair, hardening, and buildout, decarbonization and renewable energy, and the electrification of everything. I think GEV is a lynchpin to the reindustrialization of North American (and really the world) and I think this can be further seen through its recent joint ventures and partnerships with leading technology and energy companies including Amazon Web Services, Chevron, NextEra, and NRG Energy. Based on everything I know and believe today, I can’t imagine a future world where GEV is not a leading player in a global oligopoly providing the world with combine-cycle gas turbines, large transformers (and soon low and medium voltage transformers too), switch gear, circuit breakers, inverters, synchronous condensers, wind turbines and other products and services crucial to powering and electrifying the world.
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Key quotes from the earnings call…
(note: bold is my own)
“We are building a larger, higher-margin backlog that positions us for future growth and margin expansion…We are growing our equipment backlog with improved margins, and we’ll highlight the change in equipment margin in our fourth quarter earnings call.” – Scott Strazik, CEO of GE Vernova
“Our growing backlog with healthy margin provides an excellent foundation for continued improvement in our financial performance moving forward.” – Ken Parks, CFO of GE Vernova
“We’re also simplifying our portfolio to generate cash and invest in our core businesses. In the third quarter of 2025, we reached an agreement to sell our manufacturing software business for approximately $600 million. We expect to complete this transaction during the first half of 2026. We also sold an additional ownership stake in our China XD Grid business and generated approximately $100 million of pretax proceeds. The proceeds are classified outside of free cash flow and the gain was removed from adjusted EBITDA.” – Ken Parks, CFO of GE Vernova
“The reality is our potential has grown faster than our performance since the spin…We are still early in the journey to reach this potential, but with the right combination of humility and ambition, I like our chances. We look forward to seeing many of you at our investor event in New York on December 9, when we will discuss our ’26 guidance and provide an update to our outlook by ’28.” – Scott Strazik, CEO of GE Vernova
“What I would not say is that we’re experiencing any softening [in gas turbine pricing]…we continue to see price accelerating in gas. And as an illustration, when we look at the profitability and price in our slot reservation agreements, that 29 gigawatts that’s not yet in order relative to the 33 gigawatts that is on order, the slot reservation agreements are at higher price and more attractive margins that will translate to orders in directionally in the next 12 months. So, we continue to see price accelerating.” – Scott Strazik, CEO of GE Vernova
“What I can tell you is that we continue to see stronger price and stronger margin trends in the third quarter in the business for gas turbines, both in orders and also in slot reservation agreements that will turn into orders in the subsequent 12 months. I look forward to getting to our next earnings call in January and showing you, as we’ve committed every year, the change in margin in backlog, equipment backlog across our businesses and we’ve framed up in the past that the $6 billion margin growth in equipment backlog the prior 2 years will be at least sequentially as large this year on an annualized basis. We sit here today, probably even more confident that, that is a floor with an opportunity for it to be substantially higher than that.” – Scott Strazik, CEO of GE Vernova
“We’re not sitting here today trying to rationalize any reason we can’t meet or exceed previous “peak margin” levels in this business. When you think about any prior cycles, the reality is that the revenue on the services side would have been substantially smaller then because our installed base was substantially smaller. And we have a much larger installed base today with a much larger, more profitable services business, while our equipment revenue is growing into becoming a very attractive economic driver for us as we start to get into the second half of ’26 and beyond when really the new price paradigm orders start to come into revenue. Now I think a lot of the December 9 update, is, yes, as we outlined, Ken and I will frame up our ’26 commitments and our updated ’28 guide. But we’re also going to spend more time with you on why we’re so excited and have so much confidence on the trajectory of this business beyond 2028. Now we’re not going to put financial numbers out beyond ’28 this year, but we are going to try to help you understand why we have so much confidence and conviction on how exciting this business is going to be through the next decade. And these are some of the dynamics that we’ll hit on more then, but I don’t want any of you believing that we’re running this business trying to rationalize anything other than a better performance than previous peak cycles.” – Scott Strazik, CEO of GE Vernova
“The reality is that business [electrification segment] has continued to outperform our own growth expectations really for 18 months. I mean, that’s why Ken framed up, again, raising the revenue expectations of the business for this year. We owe you an update on the revenue expectations of the business by ’28 on December 9 and a macro view on what it can mean even beyond that. But clearly, our core business has been growing at even higher than the Prolec growth rate as you’ve seen over the previous 18 months. And there’s a lot of momentum there. I mean you look at the third quarter with our organic book and our orders grew more than 100%. That is generally stuff that’s going to cut in on average, 2 years from now, depending on products. Some of it’s longer, some of it shorter, but directionally 2 years. And when you think about another quarter where the orders are demonstrating that much growth, what it’s kind of telling you is that the revenue growth rate of our core business in Electrification is likely going to be higher for longer.” – Scott Strazik, CEO of GE Vernova
Disclosure: John Rotonti is an investor in and the portfolio manager of the Bastion Industrial and Infrastructure Portfolio, which owns shares of GE Vernova and Amazon. John personally owns shares of NextEra.
Disclaimer: This article is intended for informational purposes only and does not constitute tax, financial, or legal advice. Investing carries risks, including potential loss of principal. Consult a qualified professional for personalized recommendations and to ensure compliance with applicable tax laws and regulations.