Morgan Stanley Calls Geothermal the Next Shale Revolution

Geothermal has supplied just 0.4% of U.S. utility-scale electricity for years — and Morgan Stanley thinks that number is about to move.

In a note Tuesday, the bank's analysts rated two geothermal companies at the equivalent of buy and argued the industry is one drilling breakthrough away from scale. The technology that unlocked America's shale oil-and-gas boom, they wrote, is now being adapted to tap the Earth's heat for round-the-clock clean power.

"Geothermal is in the early innings of its own 'shale revolution,'" the analysts wrote. "We see the convergence of rapidly improving geothermal technology and accelerating power demand creating the conditions for a step-change in industry growth."

The timing isn't accidental. AI data centers are burning through electricity at a pace that has utilities and grid planners scrambling, and that demand is pulling investor money into every firm that can generate power — especially power that doesn't stop when the sun sets or the wind dies. Unlike solar and wind, geothermal runs 24/7.

Why has geothermal stayed stuck at 0.4%?

The math has always been simple, the geology hard. Traditional geothermal plants need natural hot-water reservoirs, conditions that exist in only a few places. As of last year, the U.S. had geothermal power plants in just seven states, according to the U.S. Energy Information Administration.

Enhanced geothermal systems — EGS — change the equation. Using drilling techniques developed for oil and gas, EGS engineers the right underground conditions almost anywhere instead of hunting for them. That's the core of Morgan Stanley's bullish case.

"This is transforming geothermal from a niche, location-dependent resource into a scalable source of 24/7, low-carbon power," the analysts said. EGS costs "have fallen rapidly as drilling performance improves, following a learning curve reminiscent of early shale development."

In plain terms: the same cost curve that made shale cheap is now bending for geothermal.

Which two stocks does Morgan Stanley like?

The bank flagged Ormat Technologies and Fervo Energy. Both have been hit by the broader selloff in power and AI-exposed names — and Morgan Stanley says that pullback has created "more compelling" valuations.

Ormat Technologies — rated overweight with a $123 price target, about 30% above Tuesday's prices. The company offers "visible conventional geothermal growth through 2030, with EGS providing longer-term upside," the analysts said. They also cited its operational scale, in-house equipment capabilities and premier land and grid positions. Morgan Stanley's verdict: "Stable base cash flow and established track record make the stock a lower-risk way to play geothermal growth."

Fervo Energy — also rated overweight, with a $23 price target implying nearly 180% upside. Fervo went public in May at $27 a share. Its stock has traded under $10 for the past two weeks and is down nearly 60% over three months. Ormat, by contrast, has gained about 3% in that stretch.

Fervo is a pure-play EGS company with a "visible cost-reduction and growth road map, supported by strong commercial demand and learnings from the oil-and-gas industry," the analysts wrote. The pedigree runs deep: CEO and co-founder Tim Latimer worked as a drilling engineer at BHP Billiton, "giving him direct exposure to horizontal drilling that Fervo later adapted for geothermal."

Execution, the analysts noted, will decide whether Fervo earns that 180% — Wall Street will watch its operational progress quarter by quarter.

Who else wins if EGS scales?

Morgan Stanley also sees openings for the traditional oilfield-services giants — SLB, Halliburton and Baker Hughes — to capture EGS business as geothermal capacity grows. The drilling skills transfer directly.

The backdrop is the AI power crunch itself. Morgan Stanley's call shows how electricity demand, turbocharged by the AI boom, is spurring activity across renewables and making them more attractive to investors.

One bank's overweight rating won't move a 0.4% market share on its own. But if EGS costs keep falling the way shale costs once did, the geothermal slice of the U.S. grid — and the stocks built on it — could look very different by decade's end.