Making a Small Bet on an Electric Grid Buildout Play
This covered-call strategy has 25% upside potential as the data center buildout calls for juice.
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The AI narrative appears to be weakening a bit in recent weeks. Investors and the financial press are starting to pay more attention on the huge amounts of debt being taken on to build out all this compute capacity, even if most of it is off balance sheet.
A recent Wall Street Journal article has generated a lot of buzz after projecting that the five major hyperscalers have a combined $3 trillion (with a “t”) in off-balance sheet liabilities. These are for items like future AI data center leases. That is in addition to the over $1.3 trillion in on-balance sheet obligations.
Despite this, I am teeing up what could be a backdoor as my covered-call trade of this weekend. The name of the company is SOLV Energy, Inc. (MWH). The company is an alt-energy concern and was the third-largest solar contractor in the U.S. by revenues in 2024. And while renewable energy is not a direct feed to AI data centers, which need 24/7 availability, the fact is the entire electrical grid needs to expand its generation capacity significantly.
The stock IPO’d early this year. The shares moved up sharply through mid-May but have dropped some 40% since. This is another great example of why I rarely if ever purchase a new issue until it has been public for at least a couple of quarters.
The company has grown both organically and via a series of strategic acquisitions. These acquisitions have expanded SOLV Energy’s into other parts of the electrical grid including battery storage projects as well as related transmission and distribution infrastructure. The equity currently trades for just over $28.00 a share and sports an approximate market capitalization of just south of $6 billion.
The company’s first two quarterly earnings reports as a public company have been more than solid. In Q2, revenues rose 77% on a year-on-year basis. This reflected both organic growth and the recently completed acquisition of Roberson Waite Electric for just over $40 million earlier this summer. Net income grew to $67 million from $45 million in the same period a year ago. Quarter-end order backlog climbed to $8.9 billion. This was up from $8.2 billion at the end of Q1 and up 44% from 2Q2025. The company is now booked on projects that amount to 23GW of new electrical capacity.
Leadership nicely boosted full-year guidance following its second quarter results. The proceeds from the IPO wiped the company’s long-term debt of just under $400 million and the firm ended Q2 with just over $360 million of net cash on its balance sheet. The current analysis consensus has EPS growing over 35% to $1.27 a share in FY2026 and to $1.81 a share in FY2027 on revenue growth in the low to mid-teens.
Options against the equity have solid premiums and decent liquidity. With the covered call trade below, I either pick up a solid return over the option duration or a much lower entry point on what appears to be a good long-term growth play.
Option strategy:
This is how one can initiate a holding in MWH with a covered-call order. Using the April $25 call strikes, fashion a covered-call order with a net debit in the $19.75 to $20.25 a share range (net stock price – option premium). At the mid-point of the range, this strategy provides downside protection of nearly 30% with 25% upside potential even if this equity trades down just over 10% over the option duration.
At the time of publication, Jensen was long MWH.
