Generac Surges on Data Center Growth but Faces Execution Risks
Generac Holdings (GNRC) has seen a remarkable 57.8% surge in its stock price year to date in 2026, driven by strong investor interest in its growing exposure to the data center sector. The company’s Commercial & Industrial (C&I) business is expanding rapidly, bolstered by a significant backlog of data center projects and investments in large-megawatt generator capacity. A recent long-term supply agreement with Amazon for backup generators supporting its data centers has further validated Generac’s position in the data center power infrastructure space.
The data center segment has emerged as a major growth driver for Generac. In the second quarter of 2026, C&I revenues totaled $556 million, up 29% year over year, with data center demand being a key contributor. Generac generated over $100 million in data center revenues during this period and secured two multi-year hyperscale supply agreements. The company’s data center backlog reached $1.6 billion as of July 2026, with management raising its 2026 data center revenue expectation to roughly $450 million. The Amazon agreement, which includes initial deliveries totaling $2.4 billion across 2027 and 2028, adds considerable scale and visibility to this fast-growing business.
Despite the strong growth prospects, Generac faces several risks. Execution risks, residential-market softness, and potential margin implications due to the rapidly changing business mix are key concerns. The residential business, which still represents a major part of the company, saw a 2% year-over-year decline in revenues in the second quarter. Management reduced its 2026 Residential growth outlook to high single-digit growth from roughly 10%, citing affordability concerns and policy headwinds. Additionally, the data center market expansion brings cyclical capital spending cycles and increasing competition from companies like Cummins and Caterpillar.
Gross margins improved sharply in the second quarter, reaching 44.5% from 39.3%, but the underlying margin profile remains sensitive to mix and tariffs. Management expects 2026 gross margin near the low end of the prior 38.5% to 39.5% range due to higher C&I mix. Generac’s shares are trading at a forward price/earnings multiple of 18.82X, marginally lower than the Manufacturing-General Industrial industry’s ratio of 20.39X. While the expanding data center backlog and the Amazon agreement strengthen its long-term growth prospects, execution risks and margin headwinds temper the case for fresh buying following the stock’s sharp rally.