Generac Rides Data Center Boom on Strong C&I Sales Growth
Generac Holdings Inc. (GNRC) is rapidly becoming a key player in the commercial and industrial (C&I) power-generation equipment market, particularly in the data center sector. In the second quarter, C&I sales surged 29% year over year to $556.5 million, driven by strong demand from the global data center market. Adjusted EBITDA margin for this segment expanded to 14.6% from 12.4% in the prior-year quarter, boosted by tariff refunds and operating discipline, though offset by unfavorable mix and growth investments.
The company's growth is heavily tied to the data center industry, which is experiencing extraordinary demand for electricity and backup power due to AI infrastructure development. Data centers require reliable backup power to avoid prolonged interruptions, making Generac's solutions increasingly critical. During the quarter, Generac generated over $100 million in data center revenues and secured two multiyear supply agreements with hyperscale customers, including one with nearly $700 million in product commitments for 2027.
Looking ahead, Generac now expects nearly $450 million in 2026 data center revenues, up from its previous forecast. However, challenges such as C&I mix changes, tariff volatility, and higher input costs could pressure margins. Despite a sharp increase in gross margin to 44.5% from 39.3%, much of this improvement was driven by tariff refunds. Excluding these benefits, 2026 gross margin is expected near the low end of the prior 38.5-39.5% range.
Competition from rivals like Caterpillar Inc. (CAT) and Cummins Inc. (CMI) poses a risk to Generac's C&I growth. Caterpillar is investing in digital capabilities and AI tools to deepen customer relationships, while Cummins is expanding its role in data center power through natural gas generation and microgrid solutions. Despite these challenges, Generac's stock has surged 14.8% in the past month, trading at a forward 12-month price/earnings ratio of 18.82X, lower than the industry's multiple of 20.51X.