Key Highlights

  • Nearly half of planned U.S. data centers are reportedly facing delays due to transformer shortages
  • Hammond Power Solutions (OTC:HMDPF/TSX: HPS.A) has emerged as a critical supplier to AI infrastructure projects across North America
  • Customers are reportedly paying up to 60% more for transformers and waiting as long as two years for delivery
  • Q1 2026 sales rose 31% year-over-year to $265 million, while Backlog surged nearly 95%
  • Despite strong Demand, net profit fell 25% due to Tariff-related input cost pressures
  • Shares of HMDPF have dramatically rerated in the AI era, climbing more in the past three years than in the prior two decades combined

The artificial intelligence boom is creating winners in unexpected places.

For much of the past two years, investor attention around AI infrastructure has focused almost exclusively on semiconductors, Cloud Computing giants and data-center operators. Companies making GPUs, cooling systems and networking hardware became the obvious beneficiaries of the generative AI arms race.

But beneath that high-profile layer sits an older, quieter and far less glamorous industrial Supply chain — one that may now represent one of the most severe bottlenecks in the entire AI buildout.

Transformers.

Nearly half of planned U.S. data-center projects are reportedly being delayed because utilities and developers cannot secure enough transformers to energise facilities. Delivery timelines that once stretched months now extend into years. Prices have surged. Lead times continue lengthening. And suddenly, century-old electrical equipment manufacturers are finding themselves recast as critical AI infrastructure suppliers.

At the centre of this shift sits Hammond Power Solutions, one of North America’s largest manufacturers of dry-type transformers.

The company’s transformation from obscure industrial supplier into AI-era infrastructure beneficiary illustrates just how deeply the Economics of artificial intelligence are reshaping traditional industries.

Why transformers became an AI bottleneck

Every large-scale AI Data Center requires enormous electrical infrastructure.

The GPUs powering modern AI systems consume extraordinary amounts of electricity, far exceeding traditional cloud-computing workloads. That power must be stepped up, stepped down and distributed safely across facilities without damaging sensitive server equipment. Transformers sit at the heart of that process.

A hyperscale AI data center may require dozens of highly customised transformers throughout construction and operation.

The problem is that transformer Manufacturing capacity was never designed for an AI-driven power demand shock of this magnitude.

Utilities, renewable-energy projects, industrial electrification initiatives and AI infrastructure developers are now competing simultaneously for the same limited pool of electrical equipment. The result has been severe shortages across North America.

Customers are reportedly willing to pay 60% more for transformer equipment and still face waits approaching two years in some cases.

For companies positioned inside the supply chain, pricing power has strengthened dramatically.

Hammond Power found itself in the right place at the right time

Founded more than a century ago, Hammond Power Solutions spent decades operating as a relatively overlooked industrial manufacturer. The company specialises in dry-type transformers used across utilities, industrial systems, renewable-energy projects and commercial infrastructure.

What makes the current moment particularly unusual is how rapidly AI infrastructure demand has altered the company’s strategic relevance.

Unlike some competitors dependent on overseas manufacturing, Hammond Power already possessed production facilities across Canada and the United States. That regional manufacturing footprint has become increasingly valuable as supply chains tighten and geopolitical tensions complicate global industrial sourcing.

The numbers from the company’s Q1 2026 Earnings report reflect the scale of the shift.

Sales rose 31% year-over-year to $265 million. Gross Margin expanded to 30.1%. Most notably, backlog surged 94.6% compared with the prior year, suggesting demand continues significantly outpacing supply.

For an industrial manufacturer more than 100 years old, those are extraordinary growth figures.

The broader market increasingly appears to recognise that Hammond Power is no longer simply selling electrical components. It is effectively selling access to AI infrastructure deployment itself.

The economics of Scarcity are changing industrial valuations

One of the most striking aspects of the Hammond Power story is how dramatically AI has rerated the valuation of companies previously viewed as slow-growth industrial businesses.

The company has been public since 2001. During the 21 years between its IPO and the launch of OpenAI’s ChatGPT, the stock appreciated roughly 15-fold.

In the three years since the generative AI boom began, shares have climbed another 18-fold.

That kind of rerating would once have seemed implausible for a transformer manufacturer.

Yet the market increasingly views electrical infrastructure as one of the most constrained parts of the AI supply chain. Companies capable of expanding capacity or delivering specialised equipment are now commanding valuations historically reserved for high-growth technology businesses.

Hammond Power currently trades at roughly 33 times forward earnings — an unusually elevated multiple for a traditional industrial manufacturer.

The valuation reflects investor belief that transformer shortages may persist for years rather than quarters.

It is not all upside

The story, however, is not entirely straightforward.

Despite strong Revenue growth, Hammond Power reported a 25% decline in net profit during the quarter. Management cited tariff-related input cost pressures and the lag between rising raw-material expenses and customer price increases.

That dynamic highlights a broader challenge facing industrial suppliers benefiting from AI demand: extraordinary revenue growth does not automatically translate into immediate margin expansion.

Manufacturers still face volatile Commodity prices, labour constraints and geopolitical uncertainty surrounding trade policy.

There is also the question of sustainability.

Current investor enthusiasm assumes AI infrastructure spending will continue accelerating for years. If hyperscale data-center construction slows or utilities begin expanding transformer supply more aggressively, pricing power could moderate over time.

For now, however, supply constraints remain severe.

The “boring” AI winners may become increasingly important

The broader lesson from Hammond Power is that the AI Investment cycle is no longer confined to software and semiconductors.

As infrastructure deployment accelerates, the market is beginning to identify secondary and tertiary bottlenecks across the industrial economy — transformers, cooling systems, switchgear, power distribution equipment and electrical grid components.

These businesses rarely attract headlines. Many are decades old. Some have existed for more than a century.

Yet they increasingly occupy strategically critical positions inside the modern AI economy.

For investors, that creates a fascinating dynamic. The next phase of the AI boom may not belong exclusively to companies building algorithms. It may also belong to the industrial suppliers quietly enabling the physical infrastructure required to power them.

Hammond Power Solutions is rapidly becoming one of the clearest examples of that shift.