Strong El Niño Expectations Meet AI Power Surge: Will AI Power Stocks GNRC and GEV Keep Rising?

TradingKey - US electricity demand is entering a new growth phase. AI data centers and manufacturing expansion are driving up power consumption, while a strong El Niño in the winter of 2026-2027 could alter temperatures, precipitation, and electricity demand across different US regions.

Generac (GNRC) primarily covers backup power, distributed energy, and data center power generation equipment, with performance relatively sensitive to weather and power outage demand; GE Vernova (GEV) benefits more from power generation equipment, grid construction, and AI data center power demand growth.

On September 10, the NOAA Climate Prediction Center projected that the probability of a "very strong El Niño" occurring from the autumn of 2026 to the winter of 2027 exceeds 90%, with a 75% chance of reaching historically strong levels between October and December 2026.

According to EIA projections, US electricity sales will reach 4.135 trillion kWh in 2026, up nearly 2% year-over-year, and rise further to 4.211 trillion kWh in 2027. Data center construction and manufacturing expansion are the primary sources of growth.

What Is El Niño and How Does It Impact the Stock Market?

El Niño is a climate phenomenon formed by the persistent warming of sea surface temperatures in the central and eastern equatorial Pacific, typically occurring every two to seven years and affecting global temperatures, precipitation, and storm patterns.

For the stock market, El Niño does not directly determine market direction, but it can affect specific sectors. High temperatures and extreme weather may increase demand for electricity and backup power, benefiting certain power and energy equipment companies; droughts or heavy rain could disrupt agricultural supplies and push up food prices; if inflation rises as a result, it could also influence Federal Reserve interest rate expectations and put pressure on high-valuation tech stocks.

GNRC: Amazon Deal Improves AI Data Center Revenue Visibility

Generac's traditional business includes residential and commercial/industrial backup power generation equipment, and data centers are becoming a new source of growth.

On September 16, Generac signed a long-term supply agreement with Amazon (AMZN) to supply backup generators for its data centers. The company disclosed to the U.S. Securities and Exchange Commission that initial deliveries from 2027 through 2028 are expected to total $2.4 billion.

Generac also granted a wholly owned subsidiary of Amazon warrants for up to 1.6937 million shares at an exercise price of $200.9266 per share. Approximately 308,000 shares vested immediately, while the remaining shares will vest in tranches based on purchase payments from Amazon and its affiliates, up to a cumulative payment threshold of $8 billion.

Following the announcement of the agreement, GNRC jumped over 34% in pre-market trading and closed up nearly 19% in regular trading on September 17.

Large data centers require backup power systems to keep servers, networking, and cooling equipment running during grid outages. Rising power density in AI servers is also driving up data center demand for high-capacity backup power generation equipment.

As of late July, Generac's backlog for data center products stood at approximately $1.6 billion, excluding expected orders under the agreement with its second hyperscale customer. That customer was subsequently confirmed to be Amazon.

The Amazon agreement establishes initial delivery schedules for Generac from 2027 to 2028, with subsequent revenue scale depending on capacity expansion, equipment delivery, and Amazon's actual procurement volume.

GEV: AI Power Demand Drives Gas Turbine and Grid Equipment Demand

GE Vernova's business covers gas power generation, wind power, grid equipment, and electrification solutions, benefiting from global power generation capacity additions, grid upgrades, and data center construction.

As of the end of the second quarter of 2026, the company's total backlog reached $176 billion. The combined backlog for gas power generation equipment and capacity slot reservation agreements totaled 116 GW, up 16 GW from 100 GW at the end of the first quarter; the company expects to reach at least 125 GW by the end of 2026.

During the same period, GE Vernova's year-to-date data center-related orders exceeded $5 billion, more than double the level for full-year 2025. These orders mainly came from the electrification segment, including transformers, switchgear, and other grid infrastructure.

Demand from AI data centers for stable power supplies continues to grow, with some projects adopting on-site power generation or off-grid power solutions to shorten grid connection wait times. Gas turbines can provide reliable power and operate in coordination with renewable energy and energy storage.

GE Vernova's growth drivers include data center power demand, gas turbine orders, and grid equipment investments. Subsequent performance will depend on contract conversions for the 116 GW projects, equipment deliveries, and the pace of revenue recognition for the $176 billion backlog.

Will Strong El Niño Expectations Become a New Catalyst?

The impact of El Niño on GNRC and GEV depends on regional temperatures, precipitation, and power outages, and is not a one-way tailwind.

According to NOAA's outlook released on September 17, from October to December 2026, the probability of above-normal temperatures is elevated across most regions west of the Rockies, nearly all areas east of the Mississippi River, and the North Central states.

Warmer weather may reduce heating demand in certain regions, affecting natural gas and electricity consumption, while changing precipitation patterns could impact regional grid operations; however, this does not mean extreme weather or power outages will inevitably increase.

For Generac, extreme weather and power outages will continue to influence demand for residential, commercial, and industrial backup power, while its data center agreement with Amazon provides a new source of growth. GE Vernova's medium- to long-term performance depends more on global investments in gas power generation, grid equipment, and data center infrastructure.

EIA data shows that after remaining largely flat for roughly 15 years, U.S. electricity consumption grew at an average annual rate of 2.1% over the past five years, with data center server power demand serving as a key driver. The EIA expects future growth to be further supported by the expansion of data centers and manufacturing.

A strong El Niño primarily represents a short-term weather variable. Going forward, GNRC requires focus on Amazon procurement and equipment delivery, while GEV depends on revenue conversion from data center orders, gas turbine projects, and grid equipment backlogs.