Stick With GE Aerospace, Ditch its Counterpart as AI Infrastructure Trade Loses Luster

Earlier this week, we made our case for closing our long position in GE Vernova (GEV). Shares of GE Vernova more than doubled over the nearly two years that we held the stock, but the risk versus reward is no longer appealing. 

We are still holding shares of what remains of the old General Electric, known as GE Aerospace (GE). In April, we sold half of our GE Aerospace shares after a gain of 84%. 

Since then, GE Aerospace has racked up additional gains. Our remaining shares have now gained over 100% since the position was initiated.

Comparing GE Aerospace with GE Vernova

What’s our next move for GE Aerospace? The first thing to understand is that this is a very different company from GE Vernova. 

GE Vernova is highly correlated to stocks in the AI infrastructure area of the market. While stocks that focus in this area have performed well overall, AI infrastructure is no longer the hot sector that it was during the first half of this year. 

GE Verona also has had difficulty with its wind division. In this year’s second quarter, this business segment lost $275 million, up from $165 million in the year-ago quarter. GE Verona’s wind division revenue declined by 10% year over year.

Predictable Revenue Stream

Meanwhile, GE Aerospace builds and provides maintenance for jet engines. Not only is this a high-margin business, it’s one that generates a steady, relatively predictable cash flow. 

That cash will keep flowing for years to come, thanks to GE Aerospace’s massive $210 billion backlog. 

Chart Concerns Overblown

Technical analysts have pointed out the following concerns about the GE Aerospace chart:

1. The stock has formed a bearish double top pattern (shaded blue). 
2. GE Aerospace failed to bounce when it filled a gap left behind from a June rally (point A)

Here’s why those concerns are overblown:

That double-top pattern may appear ominous, but the formation is relatively small. We could see the stock move a bit lower from here, but GE Aerospace is unlikely to fall below its April lows (point B). 

Like the double top, the June gap is relatively small. It was never likely that GE Aerospace would receive a big bump from filling such an insignificant gap. 

Bottom Line

By cashing in our GE Vernova position, we were able to lock in a gain while further reducing our exposure to AI infrastructure. We have concerns about AI infrastructure due to a momentum shift away from that area. 

GE Aerospace generates no such concerns. This company offers a predictable, high-margin business with a backlog that extends far into the future. GE Aerospace may not be as exciting as AI infrastructure, but I see that as a positive.

At the time of publication, Ponsi was long GE.