Generac's Data Center Surge Could Power Mid‑Teen Revenue Gains – Investors Beware

• Data‑center megawatt generator sales expected to drive a 30% jump in C&I revenue.
• Full‑year 2026 net sales growth projected in the mid‑teens, outpacing the broader power‑gen market.
• Gross margin dip to 36.3% reflects mix shift, but adjusted EBITDA margin remains solid at ~18%.
• Strategic Wisconsin plant acquisition expands capacity for large‑scale generators.
• Bull case: robust data‑center backlog, higher pricing power, and resilient cash flow.
• Bear case: lingering outage softness, legal settlement hit, and macro‑energy cost volatility.

You missed the data‑center boom, and your portfolio may be paying for it.

Why Generac's Data Center Momentum Beats the Power‑Outage Slowdown

Fourth‑quarter 2025 showed a 17% dip in domestic sales, mainly because hurricanes and severe storms—historical drivers of generator demand—were unusually scarce. Yet Generac’s international segment rose 12% and, more importantly, the data‑center sub‑segment accelerated. The CEO highlighted a growing backlog with hyperscale players that could add “significant volumes” in the coming quarters. This shift is not a temporary blip; it reflects a structural pivot toward enterprise‑grade, megawatt‑scale units that command higher margins and recurring service contracts.

How the Data Center Trend Is Reshaping the Power‑Generation Sector

The global data‑center market is on a 5%‑6% CAGR trajectory, driven by cloud adoption, AI workloads, and edge‑computing expansion. Power reliability is non‑negotiable for these facilities, prompting operators to diversify across on‑site diesel, natural‑gas, and increasingly, hybrid battery‑generator solutions. Generac’s expanded product suite—including energy storage and management devices—positions it as a one‑stop shop for critical‑infrastructure customers. As the sector leans toward >10 MW backup configurations, manufacturers that can mass‑produce at scale will capture outsized market share.

Generac vs. Competitors: Who’s Leading the Megawatt Generator Race?

Competitors such as Caterpillar and Cummins have long served industrial customers, but both are still scaling their megawatt‑generator lines. Tata Power’s recent acquisition of a battery‑storage startup signals a hybrid approach, while Adani’s power‑generation arm remains focused on renewable‑plus‑gas mixes rather than diesel‑based backup. Generac’s advantage lies in its dedicated R&D for integrated control systems and its newly‑acquired Allmand assets, which add high‑efficiency engine capabilities. This gives Generac a technology edge and a faster route to market for data‑center contracts.

Historical Parallel: Power‑Gen Companies After Hurricane Seasons

In 2017‑18, after a series of major Atlantic storms, generator makers saw a 20%‑plus sales surge, followed by a 10%‑15% correction as the weather normalized. Companies that diversified into commercial and data‑center segments rebounded quicker, because their revenue streams were no longer tied solely to weather‑driven retail demand. Generac’s current trajectory mirrors that pattern, but the “new normal” now includes a permanent, high‑growth data‑center demand curve, not just episodic spikes.

Key Financial Metrics Explained: Gross Margin, Adjusted EBITDA, Free Cash Flow

Gross margin measures the proportion of sales left after direct production costs. Generac’s drop to 36.3% versus 40.6% last year stems from a less‑favorable product mix (more low‑margin residential units) and a one‑time inventory provision. Adjusted EBITDA strips out non‑operating items—legal settlements, depreciation, and share‑based compensation—to reveal core operating profitability; the company projects an 18‑19% margin for 2026, indicating solid cash‑generation capability. Free cash flow is net operating cash minus capital expenditures; Generac expects to sustain positive free cash flow, funding its Wisconsin plant expansion without dilutive financing.

Investor Playbook: Bull and Bear Cases for Generac in 2026

Bull case: Data‑center demand stays on a 5%+ CAGR, Generac secures multi‑year contracts worth >$500 million, and the Allmand integration drives a 2%‑3% margin uplift. Capacity expansions enable a 30% rise in C&I sales, pushing net income margin to the high‑8% range. Share price could appreciate 20%‑30% as earnings beat expectations.

Bear case: Power‑outage environment remains unusually calm, limiting residential generator upside; legal settlement costs re‑emerge; raw‑material price spikes erode margins faster than price hikes can offset. If data‑center backlog stalls, C&I growth stalls, keeping 2026 revenue growth in the low‑teens and compressing margins to sub‑7% net income.

Investors should monitor three leading indicators: (1) signed data‑center contracts announced by hyperscalers, (2) capital‑expenditure timelines for the Wisconsin facility, and (3) quarterly gross‑margin trends as the sales mix shifts toward higher‑margin megawatt units. Aligning your position with these metrics will help you capture upside while protecting against downside risk.