Second Order Research

AI’s Power Buildout: Where I’d Start Looking For Returns Goldman Sachs forecasts global data-center power demand will rise 170% by 2030 from 2025. That would put demand at roughly 2.7 times its 2025 level. I’d start with the companies selling electrical equipment and building the grid. What appeals to me is the possibility of getting paid during the buildout, while the eventual returns on all that AI spending are still being worked out. Equipment suppliers and contractors can have a more direct connection between customer spending, contracted work, and cash receipts. That connection deserves investigation. It can also break if customers delay projects, financing falls through, or the supplier takes on work at the wrong price. Follow The Contracts Eaton ($ETN) supplies power distribution and backup-power equipment used in data centers. It has an understandable role in turning a building full of computing equipment into something that can actually operate. Before becoming comfortable with the investment, though, I’d want to see what Eaton has to spend to meet that demand. More factories, inventory, and working capital can absorb a substantial amount of cash. Rising sales would be more convincing if cash generation improved alongside them. With Quanta Services ($PWR), the questions move toward project readiness and execution. Quanta builds transmission lines, substations, and distribution infrastructure. A grid that needs investment creates potential work, but someone still has to fund the project, secure the approvals, and get skilled crews onto the site. I’d pay close attention to which projects are ready to proceed and how the contracts allocate the risk of delays and rising costs. A large pipeline looks different when you know how much of it can realistically become profitable work. GE Vernova ($GEV) adds another consideration: the manufacturing cycle. Its gas-generation equipment and grid technology fit the power buildout, and long equipment lead times can support demand visibility and pricing. Those same lead times make expansion decisions difficult. Capacity added to address today’s shortage may arrive in a different market. I’d examine firm orders separately from capacity reservations, then look at delivery schedules, margins, and the cash required to expand production. These businesses give us concrete things to investigate. Their exposure to the theme alone doesn’t establish an attractive entry price. The Capital Cycle Is The Harder Part Goldman’s comparison with the shale investment cycle is the part of its report I keep coming back to. A technological breakthrough can work remarkably well and still produce disappointing shareholder returns. If companies keep adding supply as the economics weaken, the benefits can flow to customers while investors absorb the cost. That is the lesson I’d carry into AI infrastructure. The comparison does not establish that the two industries will follow the same path. Today’s constraints could persist for years. Equipment shortages, grid connections, and construction capacity may continue to limit how quickly demand can be served. But as those constraints ease, the investment question changes. The supplier that benefited from scarcity must then show it can earn attractive returns with more competition and more capacity available. Efficiency makes the timing harder to judge. Cheaper AI could encourage enough additional usage to keep total spending and electricity demand growing. At some point, customers might instead retain more of those savings and slow their spending. I don’t believe the demand forecast, by itself, tells us when that transition happens. SoR Read My preference is to investigate businesses whose opportunity can be traced through funded projects, enforceable contracts, and improving cash returns. I’d become more confident if orders converted into cash without a disproportionate increase in capital spending or working capital. Repeated delays, cancellations, or weakening margins would make me more cautious—even if the headline power-demand forecast remained strong. The unresolved part is price. I haven’t established attractive entry levels for Eaton, Quanta, or GE Vernova here. That requires company-specific underwriting, including how much growth the current valuation already assumes. For now, this is where I’d spend the research time: finding who can earn well from the buildout, and what we would have to pay to participate. Source: Goldman Sachs’ August 6, 2026 GS SUSTAIN report and September 1 Exchanges episode: goldmansachs.com/insights/go… Explore SoR research and select “Subscribe Free”: secondorderresearch.com/ Curiosity Before Capital. Evidence First. Disclosure: Research is for informational and educational purposes, not personalized investment advice. Investing involves risk, including loss of capital.

Fervo Energy ($FRVO) & Ormat Technologies ($ORA): Who Gets Paid for Geothermal Growth? Google signing up for Fervo’s power makes the geothermal opportunity feel tangible. A major customer is committing to a project that still needs to be built. For investors, the harder question comes afterward: how much cash reaches shareholders once construction, financing and reinvestment are accounted for? That’s the question behind our latest Investment Brief. What I’m Watching At Fervo Fervo’s September 1 agreement with Google covers 396 MW, with the project expected online in 2028. There’s also an option for approximately 600 MW more, which we treat separately from committed demand. The agreement is meaningful. I’d still be cautious about using contracted megawatts alone to justify the stock’s valuation. A well can perform as designed while transmission constraints delay revenue. Faster drilling can lower costs, yet financing terms may leave common shareholders with less of the project’s cash than they expected. So the details I want to see are practical: when power reaches the customer, what it costs to deliver, and who gets paid along the way. Our brief does not establish a supported buy price for FRVO. There are still too many unresolved inputs in the project economics and funding plan. Ormat Is Easier To Analyze. The Price Still Matters. Ormat gives us operating assets and an earnings history to work with. Of the two businesses, it’s the one I can underwrite with more confidence. That doesn’t make it an obvious bargain. In our September 6 brief, we used ORA’s September 4 closing price of $105.45. Our base scenario, including the funding needed for growth, worked out to roughly an 8% annualized return through year-end 2028. Our research hurdle was 12%. Those returns depend on our earnings, financing and valuation assumptions. The earnings also need some unpacking. Selling a plant brings in real cash, but we can’t assume that profit repeats every year. Strong storage results deserve similar scrutiny before we extend them into the future. I’d want a better entry price or stronger evidence of recurring cash generation to become more interested. SoR Read Ormat offers the more established business. Fervo offers more direct exposure to enhanced-geothermal development, with greater uncertainty around delivery and financing. Neither is a demonstrated bargain at the prices analyzed. The full brief walks through the valuation scenarios, funding requirements and evidence that would change our view: secondorderresearch.com/ferv… Select “Subscribe Free” on the site to join Explorer and receive future research. No credit card required. Curiosity Before Capital. Evidence First. Disclosure: The author owns neither FRVO nor ORA. Research is for informational and educational purposes, not personalized investment advice. Investing involves risk, including loss of capital.

The CEO at the time, John Donahoe, and the president of products, Heidi O'Neill, pushed the direct selling initiative. She was just named Lulu Lemon's CEO back in April and $LULU stock dropped 13.3% the next day. She officially starts 9/8/2026. I don't understand why companies keep recycling flunky execs.

@rongalloway @pldevries2 @LSREnergy @gertschonwieder

@gnoble79 @SecScottBessent

LVMH Moët Hennessy Louis Vuitton ($LVMUY): Luxury Is Back at 2020 Prices—but the Business Isn’t LVMH shares have fallen to their lowest level since 2020. But LVMH is a much larger business today. 2020 → 2025: • Revenue: €44.7B → €80.8B • Recurring operating profit: €8.3B → €17.8B • Net profit: €4.7B → €10.9B Revenue increased 81%. Profit more than doubled. This isn’t a perfect comparison—LVMH acquired Tiffany in 2021—but the disconnect is still striking. The share price has round-tripped. The business hasn’t. The market’s concern is that luxury demand has changed structurally. China remains weak. Aspirational consumers are under pressure. Years of aggressive price increases may have reduced demand, while currency headwinds and creative transitions add more uncertainty. But the latest results suggest deterioration may be slowing. In Q2 2026: • Organic revenue grew 3% • Fashion & Leather Goods grew 1% • U.S. growth accelerated • Asia excluding Japan improved First-half free cash flow reached €4.1B, while net debt fell 19%. That isn’t a luxury boom. But LVMH may not need one. The investment thesis only requires stabilization. The key division is Fashion & Leather Goods, which generated approximately 71% of first-half operating profit. That makes Louis Vuitton and Dior the central hinge of the thesis. If their growth stabilizes, earnings estimates may be close to a floor. If demand continues deteriorating despite easier comparisons, the stock may still be a value trap. At approximately $100 per ADR, LVMH trades around: • 20× trailing earnings • 17–18× forward earnings • A roughly 3% dividend yield That isn’t distressed. But it is becoming interesting for one of the strongest collections of luxury brands ever assembled. The bull case is straightforward: • Irreplaceable global brands • Exceptional pricing power over a full cycle • Diversified categories and geographies • Strong cash generation • Family-controlled, long-term management • A valuation well below the pandemic luxury boom The bear case is equally clear: • Luxury demand may be structurally weaker • China may not deliver a meaningful recovery • Aspirational consumers remain squeezed • Years of price increases may have damaged volume • Fashion & Leather Goods remains highly concentrated • Earnings estimates could still be too high The next important test is Q3 revenue in October. I’ll be watching Fashion & Leather Goods growth, China, U.S. demand and whether improvement comes from real volume rather than pricing or easier comparisons. This is not yet a high-conviction buy. It is a serious contrarian research candidate. At 2020 prices, the market is asking whether LVMH’s best years are behind it. The financials suggest that conclusion may be premature. Curiosity Before Capital.

Or is it the White House controls the FOMC policy..?