Investing.com -- UBS initiated coverage on GE Vernova with a Buy rating and a $614 price target saying that the surging electricity demand from data centers and a tight supply environment is expected to drive pricing power and long-term profit growth.

GE Vernova, which holds about 35% of the global gas turbine market, is positioned to benefit from a structural upcycle in power generation.

Analysts at UBS see 70% compound earnings growth over five years, its highest estimate across covered companies, driven by AI-related energy needs and long equipment lead times that support pricing.

UBS expects global electricity demand to rise about 4% annually, accelerating into the second half of the decade.

It estimates that GE Vernova is only about one-quarter of the way through its earnings expansion opportunity for this cycle, with potential for operating profit to triple by 2030.

“While valuation is high, we believe it is sustainable,” analysts wrote, pointing to over three times annual revenue in backlog and a long-tailed services business that now accounts for 45% of sales.

They also cited utility commentary suggesting the cost of building new gas turbine plants has tripled over the past decade.

UBS sees margin expansion supported by improved pricing discipline, backlog profitability, and lean cost structures.

It estimates that better pricing and underwriting added more than $6 billion in margin to GE Vernova’s equipment backlog between 2022 and 2024.

The firm’s $614 price target implies a 20% upside from recent levels and is based on a 28x EV/EBITDA multiple, roughly 70% to 80% above the broader industrials sector, which UBS said is justified by the company’s growth outlook.