Despite concerns about overspending on artificial intelligence infrastructure, economic instability, and the potential trade war, companies are pressing ahead with significant investments in data centers.

Microsoft (MSFT) has announced its plans to invest $80 billion in data centers during its fiscal year 2025.

The investment will focus on expanding the infrastructure needed to handle the massive computing power AI demands.

Microsoft’s Vice President Brad Smith explained that this level of spending is necessary to support AI advancements, as the technology requires specialized, large-scale data centers to function effectively.

Furthermore, Meta (META) said it will spend $72 billion on capex in 2025, up sharply from the $60-65 billion it forecast three months ago and more than double its 2023 spend.

Alphabet (GOOGL) also reaffirmed its plans to spend $75 billion in capex this year as it pushes forward in the AI race.

However, there is a problem with all this spending.

All that computing needs lots of electricity and it must be clean, reliable, and efficient.

The rapid expansion of AI and data centers is pushing energy grids to their limits. Electricity demand is skyrocketing, and the infrastructure needed to support it isn’t keeping up.

That’s where Willdan (WLDN) comes in.

Since 2008, Willdan has evolved from a standard engineering consultant into a specialized energy services provider through smart acquisitions, helping businesses and governments manage power consumption more efficiently.

Its service mix includes data analysis, software solutions, engineering expertise, and program management.

On the energy side, Willdan works with utilities and private companies to design programs that boost efficiency and manage demand.

This can mean everything from auditing a city’s street lights and HVAC systems to building software that tracks energy use in real time.

Its engineers identify where power is wasted, then recommend fixes that often pay for themselves within months.

At the same time, Willdan has built a growing data center segment. Data centers can be energy hogs, but they also offer a clear use case for optimization services.

Willdan’s teams help data center operators fine-tune their electrical systems, balance loads, and integrate on-site renewables.

Operators save on utility bills, and they meet rising demands for sustainability.

As hyperscale and edge data center builds continue worldwide, that gives Willdan a steady stream of potential projects.

Government work makes up roughly half of Willdan’s revenue, but it’s driven largely by state and local agencies, not the federal budget.

That distinction matters. Even if federal spending faces cuts, state and municipal projects, often funded by local bonds or dedicated utility surcharges, tend to march forward.

Climate change adds another layer of tailwinds. Communities and companies alike are under pressure to decarbonize.

Willdan helps them map out pathways with retrofitting buildings, upgrading grids, deploying microgrids and backing them up with battery storage.

Despite all these tailwinds, the market has concerns about utility capex and federal policy changes.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market predicts that the company’s Uniform return on assets ”ROA” to decline to 16% from 22% last year.

As data center investment, grid modernization and sustainability mandates all accelerate, the services Willdan offers should be in high demand.

Its blend of consulting, engineering, and software solutions positions it to capture work across the full energy value chain.

Energy demand isn’t slowing down, and neither is the need for companies that can help manage it. Willdan is well-positioned to benefit from this trend.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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