Siemens Energy: Positioned for the Electricity Supercycle
TL;DR
· Siemens Energy is not in a normal cycle: global electricity build‑out is a multi‑decade trend
· Gas + grids are essential for data centers & renewables stability
· Strong growth: EPS expected to ~4× by 2028, margins expanding
· Risk remains at Siemens Gamesa, but core cash engines are solid
· Valuation cheaper than peers, attractive risk‑reward
The opportunity
Siemens Energy is an industrial company selling gas turbines and electricity grid infrastructure. At first glance, it looks like a classical cyclical industrial business. I believe that view is outdated.
We are not in a normal cycle. We are in a multi-decade electricity infrastructure buildout.
Gas is playing a vital role in meeting rising electricity demand, especially for data centers. While the market focuses heavily on nuclear energy as the long-term solution, the short- to medium-term supply of reliable power is largely coming from natural gas. Gas turbines can ramp quickly and provide the stability needed in renewable-heavy energy supplies.
The company is guiding for mid- to high-teens revenue growth and meaningful margin expansion through 2028. Earnings per share are expected to increase roughly fourfold by fiscal 2028. Operating leverage is significant.
The wind division, Siemens Gamesa, remains a risk and the turnaround is not fully complete. However, even with that overhang, Siemens Energy is trading at a discount to its direct peers GE Vernova and Mitsubishi Heavy Industries.
The valuation is not demanding, and if earnings develop as guided, profit growth alone can drive deliver an above- benchmark return.
Business model overview
Below I’ve summarized the various business segments Siemens Energy operates in:
Gas Services: the cash engine
Gas Services primarily sells gas turbines and steam turbines. A gas turbine is a type of engine that generates electricity by burning fuel, usually natural gas, using the hot gases produced to spin a turbine, which then drives a generator. These turbines are widely used in power plants due to their efficiency and ability to respond quickly to changes in electricity demand.
The company also offers aeroderivative turbines, which are essentially gas turbines resembling jet engines. These units are installed next to data centers to provide immediate power. They function similarly to diesel generators but offer greater efficiency.
A steam turbine converts hot steam into electricity and is used in nuclear plants to generate electricity.
Three players effectively control the global heavy-duty gas turbine market: Mitsubishi Heavy Industries, GE Vernova, and Siemens Energy. Barriers to entry are extremely high due to technological complexity of these machines and decades of R&D that are baked into them.
A new company entering the market must invest billions to create a top-quality turbine, and customers need confidence that this newcomer can provide reliable service and maintenance on one of the most complex machines out there.
Gas Services is particularly attractive because in fiscal 2025, 64% of revenue came from maintenance and service contracts. The model resembles aerospace engines: hardware is sold at a lower margin, but long-term service drives high margins.
In fiscal year 2025, Gas Services generated about 70% of Siemens Energy’s total pre-tax free cash flow, while revenue only accounted for 31% of total.
Gas Services is the cash flow machine for Siemens Energy.
Grid Technologies: The Second Growth Engine
While Gas Turbines generate electricity, the Grid Technologies division ensures that electricity is transported safely and efficiently across the grid.
This division sells products and solutions that move power from generation sites to end users. Core products include:
Transformers
Circuit breakers
Switchgear
Grid stabilization equipment
Grid Technologies (GT) is the second-largest division within Siemens Energy, representing approximately 29% of group revenue.
Service accounts for just 6% of revenue, making this business unit reliant on new unit sales. As a result, its operations are more cyclical—if new orders decline, the company cannot depend on service revenue as a backup.
Demand is strong. At the end of fiscal year 2025, the division reported a backlog of €42 billion, approximately 4x annual revenue. This reflects structural demand rather than a short-term uptick. As per the graph below: GT had the highest revenue growth rate in fiscal 2025 (25%) of all business units.
What drives growth?
For gas services, the growth drivers are:
· Highly dispatchable: Gas turbines have become highly sought after, largely because gas-fired power is easy to control. Since a gas turbine can be started in just 10-20 minutes, it serves as an excellent backup when solar or wind energy falls short due to lack of sunlight or wind. Contrast that to a 6 -hour startup for a coal plant and ~couple of days for a nuclear plant.
· Coal to gas conversion: Coal-to-gas conversion is also contributing to growth. Combined-cycle gas plants are among the most efficient sources of electricity, surpassed only by hydropower. Additionally, gas-fired plants produce less CO2 than coal-fired ones. As a result, many coal-fired power stations are transitioning to gas-fired facilities, increasing the need for new turbines.
· Datacenters: Datacenters represent a significant source of demand. According to Goldman Sachs, 63% of the additional electricity required for new datacenters through 2030 is expected to be generated by gas-fired power.
For the GT business, growth can be categorized in three segments.
· Growth in electricity usage: Electricity usage is experiencing rapid growth, which requires expanding and upgrading power grids to manage higher demand. If current forecasts are accurate, electricity consumption will rise by 5.7% annually over the next five years. That’s one of the highest growth rates in history.
· Grid infrastructure is aged: Approximately 80 million kilometers of grid infrastructure need renewal or expansion by 2040 — roughly equivalent to the entire current installed base.
· Two-way street: Grids are no longer one-directional. They must handle decentralized generation from solar, wind, batteries, and distributed systems. This requires new switchgear, transformers, and grid stabilization equipment, everything that the GT business sells.
· Interconnectors: Due to current limitations in efficient storage of renewable energy, surplus electricity generated by wind or solar sources in one location should be allocated for use in other regions. To enable this, larger grid connections between regions are necessary; this is particularly relevant in Europe. As a result, new HVDC (High Voltage Direct Current) current lines are being constructed, which require additional switchgear, circuit breakers, and other equipment that GT sells.
Conclusion: both gas services and Grid Technologies are benefiting from long term structural trends that are dtronger than from past cycles. This will enable them to at maintain growth rates for years to come.
Valuation vs Peers
On the outset, Siemens Energy appears to trade expensive. The next twelve months (NTM) PE ratio is currently 37. However, its direct competitors in the gas turbine market, Ge Vernova and Mitsubishi Heavy industries, are trading for 57 and 45.
I prefer to evaluate the PEG ratio, as companies with substantial earnings per share growth are justified in trading at higher multiples. Below I’ve calculated the NTM PE ratio divided by the consensus 5-year EPS growth rate, as it reflects long-term earnings trends without relying on predictions that are too far out to be accurate.
The consensus predicts EPS will be about €7 by 2028. If we use a next-twelve-months PE ratio of 37—which remains lower than major competitors—the projected price by the end of 2027 would be €288, representing a 47% compound annual growth rate (CAGR)
If Siemens energy would trade at the average NTM PE (43) of the peer set, then the stock could reach € 301 by the end of 2027, a 50% CAGR. This could be a nice setup to generate alpha in your portfolio.
Risks
· Siemens Gamesa: The main operational risk is Siemens Gamesa. In fiscal 2025, Gamesa generated negative cash flow of €3 billion. The recovery plan targets break-even by 2026 and 3-5% margins by 2028. If that turnaround fails, and Gamesa would for example still achieve negative 5% margins at the end of 2027, the EPS reduction would be ~€1, lowering the price to € 222 instead of € 288. So, even if Gamesa would still struggle, gas services and GT can still deliver a 41% return.
Execution risk is a key concern for Siemens Energy. Like Rolls-Royce and General Electric have experienced, design issues—such as flaws in engineering or unexpected technical setbacks—or making large investments too late in a project’s development can lead to cost overruns, project delays, and ultimately, reduced profitability.
· Lower datacenter investments: If datacenter infrastructure investments would slow, then it could hit demand for gas turbines and grid technologies. However, the demand for electricity is much broader with EVs, heat pumps, and general electrification of things providing a structural floor to electricity demand.
· Fixed-price margin risk: Siemens Energy faces risk from old fixed-price contracts within its €146 billion backlog. While newer orders increasingly include indexation clauses to pass through inflation, the remaining “non-indexed” projects—particularly in Grid and Offshore Wind, could hit earnings if energy and commodity prices rise sharply.
Conclusion
Siemens Energy is very well positioned for the explosive growth in electricity consumption. This is not some regular cycle; it’s one of the highest electricity growth periods in history, besides the 1950s and 1960s when electrical appliances came on the scene.
Usually, Siemens Energy would be a cyclical business, profiting from a couple of years of growth and then deceleration. Considering the fundamental growth drivers, I think the opportunity is much larger.
Despite the inherent risks associated with industrial companies, I believe that the potential for growth makes this stock an attractive risk-reward opportunity. The current drop in its price due to the Iran conflict, presents a good entry point to acquire shares for a long-term portfolio.