Amazon Buys Backup Power from Generac with Warrant Package Worth up to $8 Billion
Amazon's shares jumped approximately 2.5% to $252.01 on Thursday, as the company signed a potentially valuable deal with Generac. The agreement is for a $2.4 billion backup-power contract, which includes an equity kicker in the form of warrants for up to 1.69 million Generac shares.
The warrants have an exercise price of $200.93 each and will vest over time as Amazon's purchases increase, potentially reaching $8 billion. This means that only about 18.2% of the potential warrant package vested immediately, giving Amazon a long-term stake in Generac's success.
The deal is significant because it not only provides Amazon with critical backup-power equipment for its AWS expansion but also gives the company a financial interest in Generac's growth. As Amazon sends more business to Generac, the value of the warrants could increase, making this deal a potentially lucrative one for both parties.
The economics are aligned in favor of Amazon and Generac, with the agreement giving Amazon two shots at value: locking down critical infrastructure and participating financially in Generac's growth. However, there is also a risk of concentration around an increasingly important piece of data-center infrastructure.