MSX US Stocks Daily Watch: Generac Partners with Amazon! First Data Center Orders Worth $2.4 Billion, AI Infrastructure Demand Extends from GPUs to Backup Power

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Today's Observations:

AI data center investment is spreading growth opportunities beyond chips and servers to backup power equipment. On September 16, Generac disclosed a long-term supply agreement with Amazon to supply backup generators for Amazon's global data centers. The company expects the first batch of deliveries from 2027 to 2028 to total $2.4 billion. Following the announcement, Generac's stock price rose 18.3% on September 17.

The most notable aspect of this agreement is that the order size is very large relative to Generac's existing business. Generac's full-year 2025 revenue was $4.209 billion, and the $2.4 billion expected to be delivered to Amazon over the next two years is equivalent to approximately 57% of its full-year 2025 revenue.

However, the widely cited "$8 billion Amazon order" needs to be accurately understood. According to regulatory filings submitted by Generac, the $8 billion is not a fixed order amount that Amazon has committed to purchase, but rather a cumulative payment cap tied to warrant vesting. As Generac receives increasing generator purchase payments from Amazon and its affiliates, the warrants obtained by Amazon will vest in tranches until cumulative payments reach $8 billion.

Therefore, what can currently be clearly confirmed is the long-term supply relationship and the expected $2.4 billion in first deliveries from 2027 to 2028; whether it can further expand to nearly $8 billion in the future still depends on Amazon's actual subsequent purchases, data center construction progress, and Generac's production and delivery capacity.

The transaction also grants Amazon the right to purchase up to 1,693,700 shares of Generac stock at an exercise price of $200.9266 per share. Approximately 308,000 of these shares have already vested immediately, with the remainder vesting in tranches based on payments Amazon makes to Generac for purchases.

This means the relationship between the two parties is not just a one-time equipment purchase. The more generators Amazon purchases in the future, the more warrants can vest; if Generac's stock price remains above the exercise price, Amazon can also share in the value created by the supplier's business growth.

For Generac, this agreement marks a shift in the company's growth narrative. In the past, Generac was primarily viewed by the market as a residential backup generator company, with performance susceptible to extreme weather, power outage frequency, and changes in residential demand. Now, data centers are driving its commercial and industrial business to become a new source of growth.

AI data centers require large numbers of GPUs, but GPUs can only run continuously when power is stable. Even if a data center is already connected to the grid, it must be equipped with backup power generation systems that can start quickly during outages or grid failures. As the power density and investment scale of individual AI campuses increase, backup power is evolving from ordinary ancillary equipment into critical infrastructure that ensures continuous computing operations.

Data at a Glance:

• Generac and Amazon disclosed the long-term supply and transaction arrangement on September 16, 2026;

• Generac will supply backup generators for Amazon's data centers;

• The expected first batch of deliveries from 2027 to 2028 totals $2.4 billion;

• Generac issued warrants for up to 1,693,700 shares to Amazon's wholly-owned subsidiary;

• The warrant exercise price is $200.9266 per share;

• Approximately 308,000 warrants vested immediately upon signing;

• The remaining warrants will vest in tranches based on backup generator payments Generac receives from Amazon and its affiliates;

• If all 1,693,700 shares are issued, they would represent at least 2.57% of Generac's fully diluted outstanding shares;

• Generac's stock price rose 18.3% on the first trading day after the announcement;

• Generac's Q2 revenue was $1.17 billion, up 11% year-over-year;

• Q2 commercial and industrial business external sales were $556 million, up approximately 29% year-over-year;

• As of the end of July, Generac's data center product order backlog was approximately $1.6 billion, an increase of approximately $1 billion from the previous update;

• Generac maintains its full-year 2026 revenue growth guidance of "mid-to-high teens" and expects approximately low-30s% growth for its commercial and industrial business for the full year.

MSX View:

To understand this transaction, one must first distinguish between "disclosed delivery scale" and "long-term cooperation ceiling." The $2.4 billion in expected deliveries from 2027 to 2028 is currently the most clear and financially referenceable figure. The $8 billion is used to determine the vesting progress of warrants, and only when Amazon and its affiliates actually pay Generac the corresponding purchase amounts will the relevant shares gradually vest.

Therefore, $8 billion is closer to a payment milestone that long-term cooperation can expand to, rather than a contract amount that can be immediately included in order backlog or revenue forecasts.

Even considering only $2.4 billion, this agreement is still significant for Generac. Generac's full-year 2025 revenue was $4.209 billion, and $2.4 billion is equivalent to approximately 57% of that figure. Although the relevant deliveries are spread across 2027 and 2028, and actual revenue recognition also depends on production, acceptance, and delivery progress, the order size is already sufficient to significantly improve the company's revenue visibility over the next two years.

More importantly, Amazon brings more than just revenue. Data center backup power is equipment with extremely high reliability requirements. When selecting suppliers, hyperscale customers need to evaluate product performance, manufacturing capacity, global service networks, component supply, and long-term maintenance capabilities. Generac announced in June that it had secured a global supply agreement with an unnamed hyperscale data center operator; this regulatory filing confirms for the first time that the customer is Amazon.

Amazon's adoption amounts to a customer validation of Generac's large megawatt-class products. It could help Generac compete for orders from other cloud computing companies, data center operators, and colocation service providers.

The warrants further strengthen this binding relationship. Amazon obtained the right to purchase up to 1,693,700 shares of Generac stock, but most of these do not vest immediately and are instead tied to actual purchase payments. This means Amazon can only obtain more potential equity gains by continuing to expand purchases. This arrangement creates a tighter economic alignment between the two parties: Generac gains long-term demand and a basis for capacity expansion, while Amazon can share in the value generated by a key supplier's data center business growth.

But for existing shareholders, the warrants also mean potential dilution. If fully issued, the relevant shares would represent at least 2.57% of fully diluted share capital. Moreover, the warrants allow for cashless exercise, so one cannot simply multiply 1,693,700 shares by the exercise price and assume that Generac will definitely receive that cash.

The first question the market needs to watch next is whether Generac can deliver on schedule. Large data center generators require not only engines but also generator set packaging, control systems, switchgear, soundproofing, emissions treatment, and on-site installation. Generac has acquired Enercon and expanded its large generator packaging and manufacturing capabilities, but the $2.4 billion two-year delivery plan will still test its supply chain, production capacity, and project execution.

The second question is whether growth can translate into profit. The data center business can bring economies of scale, but its product mix, customer bargaining power, upfront capacity expansion costs, and after-sales service requirements are all different from the traditional residential business. Hyperscale customers typically have strong procurement bargaining power, so larger order sizes do not necessarily mean profit margins increase proportionally.

Generac's Q2 commercial and industrial business adjusted EBITDA margin was 14.6%, lower than the residential business's 34.7%. The two are not entirely comparable, and the residential margin was boosted by tariff refunds, but this still shows that a revenue shift toward commercial and industrial business may also change the company's overall margin structure.

The third question is customer concentration. In 2025, no single customer contributed more than 4% of Generac's revenue. As the Amazon project begins deliveries, this situation may change significantly. Large customers can improve revenue visibility, but they may also strengthen customer bargaining power and increase Generac's exposure to order delays, project adjustments, and changes in capital expenditure cycles.

The fourth question is the technology path for backup power. Currently, large diesel generators remain an important choice for data center emergency power due to their fast startup, long continuous runtime, and maturity. However, as data center emissions attract more attention, natural gas power generation, fuel cells, battery energy storage, and hybrid power systems are also developing.

Generac needs to prove that it can not only capture current demand for diesel backup generators but also remain competitive as data centers transition toward low-emission and multi-energy systems in the future.

From the perspective of the broader AI investment cycle, this order once again shows that the bottleneck in data center capital expenditure is spreading from chips to the entire physical infrastructure. GPUs determine how much computing power a data center has, transformers and transmission and distribution equipment determine whether power can enter the campus, cooling equipment determines whether servers can run stably, and backup generators determine whether computing tasks can continue when the grid is abnormal.

This equipment typically does not receive the same high market attention as GPUs, but it is indispensable for data centers to actually become operational. Therefore, Generac's rally this time reflects not only the $2.4 billion in potential revenue from Amazon but also the market's reassessment of the company's valuation framework. In the past, Generac's performance was heavily influenced by power outages, hurricanes, and residential generator demand; in the future, data centers may become a longer-term and more predictable source of growth.

However, after the stock price rise, investors need to wait for orders to actually translate into revenue, profit, and cash flow. The most noteworthy things to watch next are whether Generac's data center order backlog includes Amazon's new purchases, the progress of capacity construction in 2027, commercial and industrial business margins, and the pace at which Amazon's actual payments trigger warrant vesting.

The Amazon order has already proven that Generac has entered the hyperscale data center supply chain. In the next stage, what the company needs to prove is that it can not only win orders but also manufacture on schedule, maintain profit margins, and convert the AI data center construction cycle into sustainable free cash flow.

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Risk Disclosure: Macroeconomic conditions and US stock markets are subject to significant volatility. This content is provided solely for academic and research observation reference by Maitong Research Institute and does not constitute any investment advice.