Hello and welcome to Asking for a Trend. I'm Josh Lipton. A big day in finance. The Fed makes its rate cut decision. Plus, investors digest a slew of big tech earnings. There's a lot to keep track of, so we're focusing on what you need to know to get ahead of the curve. The Federal Reserve delivering a rate cut in markets like the commentary from Fed Chair Jerome Powell. The S&P 500 closing near all-time highs. We've got the takeaways from the trading day. Plus, a closer look at the energy demands of AI. The lead leader of GE Vernova, one of the companies in the middle of this data center buildout, joins for an update as that stock hits a new record and key options trades to make heading into the new year. We've got a few plays to consider for your portfolio.
Well, Genova sits at the center of a massive global energy buildout. And Yahoo Finance's Julie Hyman caught up with CEO Scott Strazzik about how he's steering the company through this next phase.
If you look in the US, over half of the electrons every day in the country are created with our equipment. So, I mean, our install base is a very material part of the system in totality. In the world, it's about a third if you exclude China. So I give that context to just say we're playing to all industries and supporting all long-term dynamics. Today in our backlog only about 10% of the backlog is hyperscale or AI-centric. We could see that growing to approximately a third over the next 3 years but today it's 10% of our business. At the end of the day there's a lot of other drivers with demand right now. It's also just the electrification of buildings. It's the reindustrialization of the US. A lot of industrial growth outside the US ultimately the electrification of transportation so there's a lot of drivers AI is one of them but it's one of many.
Okay, so that's helpful to understand the bigger spectrum. Within gas turbines though, it's a higher concentration, right?
It's about a third. It's really about a third of our future business from here. This quarter as an example we've signed large contracts in Vietnam in Mexico so there's other certainly international markets. Think about Saudi has been a very big market for us with gas the last few years. Taiwan which in some ways AI-centric because it's powering TSMC growth that ultimately is related to the data centers but if you really say just hyperscaler direct or nearly direct it's about a third of our business in gas. So even if you're looking beyond the hyperscalers to that bigger spectrum that you're talking about, you know, obviously you're well aware of the big debate around the spending that is going into compute right now, AI compute.
So it can be a double-edged sword. It's great for your business, but there are concerns about overcapacity and cutting back. Are you concerned about that at all?
Well, I start with what we're seeing in our operations. And the reality is part of how we're expanding our margins as much as we are. And you know, we talked about with our investors yesterday is 8-12% EBITDA margins this year growing to 20% by 28. Part of that is the variable cost productivity we're driving with a lot of volume growth and limited as an example engineering growth. And that's because the investments we're making in AI and the productivity we're seeing. So when I take a step back and think about a $130 trillion global economy and half of its labor and services in one way, shape or form, if AI impacts 10% productivity of that labor, that's a $6.7 trillion annual benefit and I hear a lot of debates on hundreds of billions of dollars of investments. My point is just I think it's early and see a lot of attractive returns with what we see inside Vernova and generally with all of our interactions with the hyperscalers. So I remain confident in the build and frankly we're probably capitalizing for a smaller demand than what many of us read about it could be.
I want to ask about the wind business as well because this is the lagging part of the business that's not doing as well right now. Part of that is policy related, right? The Trump administration and President Trump himself. It's not a wind guy. I think it's fair to say. So is the focus in that business going to be mostly international? At some point, do you say why do we stay in this business? Do you figure out a way to get out of it? How are you thinking about that?
Well, you control what you can control. And the reality is we have 57,000 wind turbines globally creating electricity today. That already gives us a real opportunity to invest into how we service those wind farms and to get the most performance out of them. As an example, we have 30 gigawatts of wind turbines in the US that are eligible for repowering by the end of the decade where you kind of leave the tower, but you may put on longer blades, a bigger generator.
That's very attractive because the wind farm already is there and you can just replace parts and get more output.
And you don't have to get approval for a new project, for example. Exactly. The permitting is more straightforward. So, you focus on what you can control. And those are examples of what we focus on today. Well, running our business better. So, what I talk to the teams about all the time is we're not going to play victim. We're not going to suck our thumbs. There's always going to be different administrations that may focus on different electricity sources in different ways. We need to use this period that you're right, our volume is softer, but do we run away from that or do we use that softer period of time to build a better business? So, as an example, we've implemented a lot more automation into how we make the blades. We've added a lot more robotics and inspections to drive a higher quality product at the end of the day. In this regard, it's easier to do that when our volume is lower than it would have been to do in a spiked period of time. So through every business model and cycle, you need to take it for what it is and make it better. And that's what we're trying to do.
And finally, I want to ask you a little bit about M&A. You guys just your most recent Prolec, a maker of transformers. So another bet on electricity. And you bought the 50% of that that you didn't already own.
How does that fit in? And then how are you thinking about M&A as you go into 2026?
Yeah, I mean we're really excited about the Prolec acquisition. And to your point, we know the team well because we already owned 50% of the JV. There's large factories in Louisiana and North Carolina and Wisconsin that we see real opportunities to invest into to create a lot more output for the North America market. It just became a dynamic where we were doing more and more complicated deals with customers like the hyperscalers that were becoming co-mingled between as an example our gas and nuclear equipment and the grid equipment and having to contract the transformers in the US with a 50/50 partner was maybe clunky. This streamlines the customer experience and allows us to invest into the factories in a way that maybe our partner didn't want to because we're that committed to this market and believe in it.
And for next year, do you see any areas where you could see more opportunities like that or other places that you would want to add on?
We certainly have a lot of capital to put to work. So, what we talked about with our investors yesterday is we'll generate $22 billion of free cash flow after investing $10 billion of capex and R&D from 25 to 28. And then after we return at least a third of that $22 billion to our shareholders, that's $16 billion to put to work. So, we need to focus on returns, figure out where we want to allocate that capital, but generally speaking, it'll likely be in our core. We talk about vertical integration, doing things that make the job easier for our teams than necessarily adding another ball in the air for them to juggle right now because our teams haven't experienced this much organic growth, most of them in their careers.
So, I want to make sure as I use our owners' money, I'm doing it in a way that my teams feel like we're making it easier for them to win and not more complicated. And that's where things like Prolec make a lot of sense because it streamlined a customer experience that allowed us to just integrate products that are similar to ours fully into our operations. That makes the team's job easier and I think the customer experience better. Where we can find more of those opportunities, we're going to do it. But we're also going to be patient. We're not going to be rushed and when we find the right transactions, we'll jump.
Great. Scott, thank you so much for being here.
