July 10, 2025
One of the key themes to emerge since equities put in their April 7th low has been smart grid implementation. We’ve observed that among infrastructure focused funds, smart grid adjacent stocks and the GRID ETF has been YTD leadership among the funds we track (chart below).
The GRID ETF (chart below) is pulling back in the near-term, but is a potential accumulation opportunity given a stable macro picture, firm investor risk appetite and a move away from the extremely binary Growth vs. Value dynamic that underpinned equity rotations in 2023 and 2024. Infrastructure stocks span an array of commodities adjacent, high dividend and economically sensitive areas of the equity market. Historically, these have been Value plays, but AI adoption is providing a Growth/Concept component to these industries. Smart appliances can communicate with apps and AI to increase efficiency and capability. EVs and environmental concerns are structural tailwinds to these trends.
From a sector perspective, this is an Industrial play with Construction & Engineering, Machinery and Electrical Equipment stocks prevalent. However, autos and chips also come into play along with electronics and networking stocks. Given the equity markets recent embrace of more purely cyclical exposures (rather than Growth exposures), this area is primed to outperform if the macro backdrop remains consistent.
Stock Level
Within the S&P 500, PH, ETN, GEV, PWR and HON are big players along with NVDA, ORCL, IBM and TSLA. Ex-US names include Hyundai Electric, Sumitomo Electric and Siemens AG. With recent buyer interest in the Small/Mid trade there are also a number of strong stocks down cap. which illustrates the speculative interest and vitality of the theme.
PWR
We project upside to $460 over the intermediate-term based on the recent break-out above the $350 level
CSCO
A trended stock over the last 12-months that’s outperformed the S&P 500 by 35% over that time, CSCO is potentially in the early innings of a secular bear-to-bull reversal. Despite recent gains, the stock has lagged the S&P 500 by 27% over the past 20 years. We generally look for this kind of setup as it offers potential for longer-term outperformance once a company has righted the ship.
AZZ
Big beat and raise today, but this is a stock that we may want to accumulate if it comes back towards the $100 level. The type of near-term price action exhibited (moving to an extreme overbought condition from a position of chart strength) is often present in momentum stocks.
ITRI
Recent price action above the $120 level represents a multi-year base break-out above the stock’s 2021 price high. This is a potentially coiled spring with potential upside to $200 based on the technicals.
Conclusion
Growth, Mag7 and AI have dominated leadership dynamics for US equities since early 2023. Recently we’ve seen investors change the dynamic by moving up the risk curve and embracing high beta themes across a broader array of sectors and industries. We think this is the natural progression of a secular bull trend where leadership evolves after a near Bear Market in early 2025 acted as a market clearing event. Cyclicality wasn’t a big factor in the previous bull market as bank runs, inflation and high costs hampered the outlook. We think those headwinds are potentially clearing and a broader mix of stocks is poised to outperform. Smart Grid is one theme that has taken some momentum from the Mega Cap. Growth trade. We will be looking at other down the line.
Data sourced from FactSet Research Systems Inc.
