On May 21, Jefferies upgraded the stock rating for power generation equipment manufacturer Generac from Hold to Buy and significantly raised its price target from $239 to $302. Following this news, Generac's stock price rose over 3% on the day.
In its research report, Jefferies highlighted that data center construction will be an important catalyst driving Generac's stock price higher, noting that this positive factor has not yet been fully priced in by the market. Analysts believe the company has multiple opportunities to score on converting data center backup power contracts and anticipate potentially two significant data center-related announcements this year. Jefferies specifically mentioned that Generac's Baudouin engine has been included in the configuration plans of a hyperscale cloud service provider, signifying market acceptance of the company's product and noting that only Generac can effectively scale production of this product.
In fact, Generac is accelerating its transformation from a traditional residential backup generator supplier to a key power equipment provider in the AI infrastructure field. The company's Q1 2026 financial report shows that Commercial & Industrial segment revenue grew 28% year-over-year to $385 million, driven almost entirely by data center backup power orders. The company's total order backlog exceeds $700 million, with one hyperscale cloud vendor having issued a non-binding letter of intent for $600 million in deliveries for 2027.
Analysts point out that data center generators offer a gross margin advantage of approximately 600 to 800 basis points compared to residential models and typically come with long-term contracts. As data centers' contribution within Generac's Commercial segment continues to increase, now nearing 25%, the company's profit structure and valuation rationale are expected to be re-evaluated.
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