Gas Turbine Prices Are on Track to Nearly Triple. These Stocks Are Cashing In.

After an extremely difficult period at the end of the past decade, when the market wrote off fossil fuels in favor of renewable energy, natural gas has come back in a big way, driven by demand for power from artificial intelligence (AI) data centers. That's sent shares of the leading gas turbine and services companies GE Vernova (NYSE: GEV), Siemens Energy, and Mitsubishi Heavy Industries soaring in recent years. They still offer excellent ways to gain exposure, as does a lower-risk exchange-traded fund (ETF) such as the Global X MLP & Energy Infrastructure ETF (NYSEMKT: MLPX). Here's why buying both gives balanced exposure to the investing theme.

The investment case for GE Vernova

According to leading industry analyst Wood Mackenzie, gas turbine prices have increased by 195% since 2019. It's a remarkable turnaround, and it's evident in the growth of GE Vernova's remaining performance obligations (RPO) during that period. It currently stands at $176 billion and, based on its order pipeline, Chief Executive Officer Scott Strazik is confident it will reach $200 billion in 2027, representing a near-doubling from 2022.

Data source: GE Vernova. Chart by author.

In addition to RPO growth (largely driven by order growth), readers should note a couple of bullish points on top.

First, GE Vernova's services are higher-margin, and it offers long-term service agreements with its gas turbine equipment sales, allowing it to lock in an extended income stream. Every single piece of gas turbine equipment adds to its installed base and, consequently, to its long-term earnings and cash-flow potential.

Second, zeroing in on the power segment's equipment backlog, Strazik said it increased from 44 gigawatts (GW) to 53 GW in the second quarter, and its slot reservation agreements (SRAs) increased from 56 GW to 63 GW. SRAs involve upfront payments by customers to secure a manufacturing slot in the future, and their growth signals how hot demand is.

Putting these points together, every time GE Vernova wins more orders and increases its backlog, investors should pencil in more future cash flow (from service revenue) and more near-term cash flow (from SRAs).

Is GE Vernova stock still a good value?

To illustrate this point and demonstrate how GE Vernova's near- and long-term projections can increase on the back of continued earnings momentum, here's a look at how management and Wall Street analysts raised near- and long-term free-cash-flow (FCF) estimates after the recent strong earnings results.

Data source: Visible Alpha.

To be clear, GE Vernova's current market cap is about $240 billion, putting it at just under 20 times full-year 2026 FCF. This valuation is fine, but as you can see above, Wall Street sees 2026 FCF as a near-term peak (note the decline in 2029), driven by SRAs, before more services revenue kicks in (hence the increase by 2032) to drive FCF higher. Therefore, investors should buy the stock only if they are confident its orders and SRAs will continue to grow strongly in the coming years, as more SRAs drive near-term cash flow higher.

There's another growth story in natural gas

The growth in the installed base of gas turbine equipment implies growth not only in gas turbine services but also in the natural gas used to fuel gas turbines.

That's great news for natural gas-focused companies, such as pipeline and storage facilities companies held in the Global X MLP & Energy Infrastructure ETF. Buying into the ETF obviates the need to pick winners in the sector and provides broad-based exposure to 29 relatively high-yielding stocks, with the ETF currently yielding more than 4%.

It's a relatively safe way to play the theme, as evidenced by its lower volatility than that of GE Vernova in recent years.

GEV Total Return Level data by YCharts

The ETF's exposure to midstream energy companies (transportation, storage, and infrastructure) that earn fee-based revenue gives it upside exposure to increased natural gas volumes as more heavy-duty gas turbines, such as GE Vernova's, are used. Combining an investment in GE Vernova with this ETF provides balanced exposure to growth in gas turbines and natural gas volumes.

That said, based on the valuations discussed above, GE Vernova is a stock to buy only if you believe in its order and backlog momentum. MLPX, by contrast, may better suit more conservative investors seeking lower-volatility, yield-oriented exposure to the same natural gas volume growth theme.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Vernova. The Motley Fool recommends Siemens Energy Ag. The Motley Fool has a disclosure policy.