Generac (GNRC) makes backup power and energy generator systems. Before the AI rally, this was a mature business people only remembered when a hurricane hit. However, that's changing quickly as the company now sees heavy demand from data center companies.
Last month, Generac signed a deal to supply backup generators to Amazon's (AMZN) data centers, and the agreement is worth up to $8 billion. The first $2.4 billion of deliveries will happen next year and in 2028. Remember, Generac's total sales last year were just $4.2 billion.
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Unfortunately, things have not been so smooth-sailing for GNRC stock. It remains down over 60% from its 2021 peak and has been on a rather volatile uptrend since 2022.
www.barchart.com Wall Street Believes the Trend Is Set to Change
The Amazon deal could lead to significant gains for GNRC stock, as a parade of analysts have raised their price targets. Canaccord lifted its target by $100 to $375, and it called the Amazon agreement a “landmark” deal. Roth Capital sees the stock at $250, whereas JPMorgan and Stifel see it at $265 and $290, respectively.
Per Stifel, the fast growth in Generac's commercial and industrial business could end the stock's reputation as a “hurricane play.” Instead, investors could start seeing it as a key beneficiary of the AI rally.
Of course, not every analyst is on board. Citi is going against the crowd, and it cut its price target from $300 to $232. Cantor Fitzgerald also trimmed its price target from $333 to $297 due to a broader valuation reset in the sector.
A 50% Jump Is Only a Matter of Time If the AI Rally Continues
As long as Big Tech keeps pouring money into the AI buildout, you should expect GNRC stock to continue on its uptrend. Most Magnificent 7 companies are not letting up on their spending and are doubling down, with some even turning to debt as cash runs out.
The data centers that are coming online need backup power since even a few seconds of downtime can cost AI companies millions of dollars, on top of further reputational damage if their uptime drops below that of their competitors.
A continued buildout will create ample demand for generators and drive up both sales and margins. In fact, it's happening already, as commercial and industrial revenue jumped about 29% in Q2 due to data center demand.
The company exited the quarter with a $1.6 billion in data center backlog. Add the $2.4 billion in initial Amazon orders, and Generac now has around $4 billion in data center work lined up. That’s almost a full year of the company’s 2025 sales.
Where GNRC Stock Could Go From Here
Analysts expect revenue to increase from $4.2 billion in 2025 to $7.53 billion in 2028. That's a very healthy leap from 2022 highs of $4.56 billion. They also see net income bottoming out last year at $160 million, and they see it at $918 million in 2028.
You're currently paying 15 times forward this year's expected earnings for the business, and I believe that is slightly underpriced relative to how much growth potential there is.
GNRC stock trades this low since sales and profits are yet to bounce back meaningfully, and this remains a recovery play. Again, 2025's net income of $160 million is lower than Generac's net income back in 2014. The chart does not look promising when you zoom out into the past. But when you look into the future, that's where the analysts are drawing their bullish price targets from.
The mean price target of $288.95 suggests room for an approximately 50% increase in the next 12 months.
I see GNRC stock at ~$300, in 12-18 months, though this depends heavily on the AI rally.
GNRC has had multiple significant ups and downs in the past two years, so I wouldn't be surprised if it ends up below $200 if management fails to execute this turnaround.
www.barchart.com On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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