Two major investment themes are reshaping global capital markets and driving gains for Rolls-Royce: surging global defense spending and large-scale construction of AI-powered data centers. The engineering firm has raised its full-year underlying operating profit forecast to a new range of £4.7 billion to £4.9 billion, up from the previous guidance of £4.0 billion to £4.2 billion. Chief Financial Officer Helen McCabe said in an interview that data center operators, constrained by grid capacity, are increasingly purchasing backup power and self-generation solutions, fueling a more than 50% jump in orders for the company's data center power business in the first half of the year.
The upturn in the defense sector and the proliferation of AI infrastructure are driving the performance of UK-based Rolls-Royce. Benefiting from robust demand across civil aviation, defense, and power systems, the industrial group posted strong first-half results and raised its full-year profit and free cash flow guidance on Thursday. As a FTSE 100 component, Rolls-Royce reported first-half underlying operating profit of £2.5 billion, up 46% year-on-year, with revenue of £11.3 billion, a more than 24% increase. The company now expects full-year underlying operating profit of £4.7 billion to £4.9 billion, up from the prior range of £4.0 billion to £4.2 billion, and has lifted its free cash flow forecast to £3.8 billion to £4.0 billion, from £3.6 billion to £3.8 billion. Shares rose as much as 6% during the session, with the latest gain at 4%.
The latest earnings report confirms that Rolls-Royce is deeply benefiting from two global investment trends: a sharp rise in national defense spending and the accelerated rollout of AI computing data centers. Following the release, CFO Helen McCabe discussed the outlook in an interview. She noted that due to limited public grid capacity, data center operators are heavily procuring backup power and on-site self-generation equipment, leading to a more than 50% increase in orders for the company's data center power business in the first half. She also highlighted long-term opportunities from defense spending expansion, citing the UK's defense investment plan, which provides long-term funding, and NATO's call for increased military spending by member states. "We have had our first round of positive engagement with the new UK government. We fully align with the government's focus on economic growth, defense construction, and advanced manufacturing upgrades, and we are committed to supporting these efforts and leveraging our industrial value," McCabe added. She stated that the UK's defense investment plan secures military funding through 2030 and beyond, significantly enhancing order stability.
The transformation is showing results. McCabe's comments reflect how, under CEO Tufan Erginbilgic's restructuring strategy, the company's growth drivers are becoming more diversified. Historically, the market has viewed Rolls-Royce primarily as a long-haul aviation engine supplier, with performance closely tied to the recovery of civil aviation. The company is now entering the AI infrastructure sector through its power systems division while also deeply engaging in the global defense spending cycle, pursuing dual growth paths. Erginbilgic stated in the official announcement: "The transformation strategy continues to deliver value. The group is generating multiple new growth avenues, with a more resilient and diversified business portfolio."
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