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Steven Rathbone is the vice president and Nick Dreps is the head of infrastructure and industrial services at Chicago-based global corporate finance advisory firm Stout. The opinions are the authors’ own.
The numbers are staggering: Over the next three years, the United States will face a shortfall of approximately 44 gigawatts of electrical capacity, equivalent to All New York State Summer Electricity consumption This “electron gap” represents more than an infrastructure challenge. The breach is catalyzing a fundamental transformation in the electrical contracting industry, driving M&A activity and a change in the way these companies operate.
Steven Rathbone
Courtesy of Stout
This is not speculative like the dot com bubble. There are significant dollars behind real infrastructure projects that have been allocated and approved, which are estimated to come 3 trillion dollars by 2030led by key US hyperscalers through investments like the $500 billion Stargate project. This means that for contractors, especially electrical ones, the cash flows are there for the taking.
Rise of AI infrastructure
The convergence of artificial intelligence demands and lagging electrical infrastructure has created an unprecedented opportunity for electrical contractors. Tech giants included Oracle and Amazon commit hundreds of billions of dollars to build data centers, and these are essential to keep pace with the computational requirements of AI.
Oracle has recently faced shareholder pushback over massive data center capital expenditures, but the company’s response was unequivocal: these investments are planned and necessary.
For electrical contractors, data centers represent the perfect storm of opportunity. These facilities require extensive high-voltage transmission and distribution work, complex electrical systems, sophisticated control panels, customized equipment and ongoing maintenance. Unlike some traditional construction projects, data centers create multiple revenue touchpoints throughout their lifecycle.
Infrastructure beyond data centers
While AI-driven data center construction grabs headlines, electrical contractors benefit from two additional powerful tailwinds: grid modernization and energy transition investments.
Nick Right
Courtesy of Stout
America’s aging power grid was never designed to handle today’s demand levels, let alone the exponential growth driven by AI and electrification. Utilities are investing heavily in transmission and distribution improvements, which are expected to come $1.1 trillion in network investments by 2029, creating sustainable work for contractors with the right skills.
These facilities require sophisticated electrical contractors capable of managing the design, integration and installation of complex systems.
Capacity reduction and consolidation
The fragmentation of the sector is both a challenge and an opportunity. Large projects increasingly require prime contractors to partner with smaller subcontractors not only for specialized work or risk mitigation, but also to simply mitigate capacity constraints.
You may see several electrical contractors on the same job site: one large main and two smaller ones that help meet capacity or do something more specialized and custom.
This capacity crisis is driving aggressive M&A activity. Buyers are looking for several goals: to acquire proven data center experience and resumes, to gain a presence in regions with active data center construction, and most importantly, to add human capital to scale operations. In an industry limited by the availability of skilled labor and rapidly evolving, purchasing power and experience is materially faster than organic construction.
The consolidation trend also reflects strategic sophistication. Buyers accumulate projects and look for capabilities that can turn large builds into sources of recurring revenue.
Turn projects into ongoing profits
The most valuable electrical contractors are those who demonstrate the ability to transform project work into ongoing service contracts. Depending on size, data centers often require nested teams of three to 12 people permanently on site to maintain and service electrical systems and control panels.
The logic is compelling. The contractor who built the electrical system understands the engineering, installation challenges, equipment and potential points of failure better than any third party. This institutional knowledge makes them a natural fit for ongoing maintenance and generates high switching costs for customers.
Service contracts also provide margin stability and revenue visibility that pure project work cannot. As projects only increase in size and complexity, recurring revenue through post-commissioning service contracts helps smooth performance variability and quell project-based investor concerns, boosting valuations.
Beyond the bubble debate
Skeptics worry about a bubble, but industry participants see fundamental differences from the speculative frenzies of the past. Spending is anchored in real infrastructure needs, supported by both private sector capital and government investment. Even if demand eventually softens, the near-term pipeline is measured in years, not quarters.
The electrical contracting industry is experiencing a rare alignment: growing demand from multiple sources, capacity constraints that create pricing power, specialized labor conditions, and strategic consolidation that allow platforms to capture both project work and recurring revenue.
For contractors with the right capabilities and scalability, the electronic divide represents a generational opportunity. For investors and buyers, it’s driving some of the richest valuations the industry has ever seen. Both target professional services firms that service infrastructure, and participants are betting that those valuations are justified by cash flows that will continue long after the current AI boom matures.
The prevailing question is not whether this is a bubble that will burst in the coming years. It’s about whether contractors can scale quickly enough through organic growth, strategic acquisitions, or both to capture the opportunity at hand.
