Earnings call transcript: National Grid’s H2 2026 shows robust growth By Investing.com

National Grid reported strong FY2026 results, with capital expenditure up more than 20% to GBP 11.6 billion, underlying operating profit at GBP 5.7 billion, and dividend per share rising 3.8%. Management reiterated a five-year plan to invest at least GBP 70 billion, targeting 8%-10% EPS CAGR and nearly 10% annual asset growth, while highlighting AI-driven efficiency gains and connectivity demand from data centers. Shares rose 0.62% pre-market to $87.52 on the upbeat outlook.

Analysis

NGG is not just a utility story; it is becoming a contracted-capacity story tied to the AI buildout. The key second-order effect is that data-center demand does not need to be fully realized to matter — the queue itself justifies near-term grid capex, contractor lock-up, and better regulatory bargaining power, which should sustain a valuation premium versus slower-growing peers. That said, the market is likely underestimating how much of the value created by efficiency gains will be socialized back to customers, limiting EPS upside from the operational-improvement narrative.

The more interesting competitive dynamic is that NGG’s technology emphasis changes the utility playbook: if it can repeatedly turn “flexibility” into deferred capex and faster interconnections, it becomes a gatekeeper for AI load rather than a passive wires owner. That should benefit grid equipment, HVDC, cable, automation, and power-management vendors more than pure generation names; the bottleneck shifts from electrons to permitting, interconnection software, and field execution. The flip side is that any execution miss, supply-chain slippage, or unfavorable RIIO-ED3 / US rate outcome will hit sentiment quickly because the stock is now priced as a visible growth compounder rather than a sleepy defensive.

My contrarian read is that the consensus is too focused on the upside from AI demand and not enough on the timing mismatch. The utility can announce capacity and pipeline visibility today, but monetization arrives over years, while near-term returns are still constrained by regulatory sharing, inflation pass-through, and a large capital base that needs flawless execution. The setup is attractive, but the valuation likely already embeds much of the good news; the cleaner trade may be to own the enabling tech/supply-chain beneficiaries rather than chase the utility beta itself.

Key Decisions for Investors

• Stay long NGG as a medium-term defensive growth compounder, but size it as a core utility holding rather than a momentum trade; prefer a 6-12 month horizon and add only on pullbacks or post-regulatory clarity.
• Pair trade: long NVDA / short NGG for 3-6 months. Thesis: the AI capex cycle monetizes faster in semis than in regulated infrastructure, while NGG’s regulatory sharing caps near-term upside from demand growth.
• Long infrastructure-enablers over utilities: initiate a basket long in cable/grid automation names versus NGG-equivalent defensives on any AI-data-center pullback. Best risk/reward is in vendors that benefit from front-loaded capex and less regulatory leakage.
• If trading NGG directly, use call spreads rather than outright equity: 3-9 month bull call spreads to express upside from RIIO-ED3 / large-load wins while limiting downside if valuation compresses.
• Watch for a tactical short opportunity in NGG if the stock re-rates to the upper end of its 52-week range before evidence of EPS conversion; the catalyst would be any sign that efficiency gains are being pushed through to customers rather than shareholders.