Generac Lands $2.4 Billion Generator Deal With Amazon
Key Points
Generac had previously disclosed a major deal with a hyperscaler; a regulatory filing on Wednesday made clear the customer is Amazon.
Amazon received a warrant for up to 1.69 million shares of Generac stock.
Initial deliveries will total $2.4 billion, and additional purchases could bring the deal's value to $8 billion.
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Generac Holdings' (NYSE:GNRC) stock is up 20% on Thursday following a regulatory filing indicating it signed a long-term agreement with Amazon (NASDAQ:AMZN) to supply backup generators for its data centers.
According to the filing, Amazon.com NV Investment Holdings received a warrant to acquire up to 1.69 million shares of Generac stock at $200.93 per share. More than 300,000 shares vest immediately; the remaining shares will vest in tranches tied to Amazon's purchases of backup generators through 2033. Initial deliveries will total $2.4 billion in 2027 and 2028, according to Reuters, and additional purchases could total as much as $8 billion.
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The deal is expected to support Amazon's fast-growing artificial intelligence business. Amazon currently has the largest cloud computing business in the world by market share, and the run rate for its AI and chips business each topped $25 billion in the most recent quarter.
Here's what the deal means for Generac and Amazon.
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About Generac Holdings
Generac, based in Waukesha, Wisconsin, is a manufacturer of portable and standby generators that are designed to kick on in the event of a power failure. Its products serve residential, commercial, data center, telecom, rental, and industrial markets.
The company is relatively small, with a market cap of $10 billion compared with Amazon's cap of $2.7 trillion. But it's becoming an increasingly important supplier of AI infrastructure as hyperscalers seek to secure backup power supplies for their data centers. That's because even a brief outage can damage equipment or disrupt AI workloads. And the power requirements for data centers are immense, with their massive computing capacity, cooling systems, and networking equipment.
Generac has been enjoying a strong year, with shares up 52%. And in the second quarter, its net sales jumped 11% to $1.17 billion, with commercial and industrial sales showing 29% sales growth.
The company had previously disclosed that it had finalized a deal with an undisclosed hyperscale data center company, securing $700 million in volume. In its second-quarter earnings statement, it announced that it had signed a contract on June 24 with a second hyperscale company and was negotiating terms for volume in 2027 and 2028. The filing with the Securities and Exchange Commission makes it clear that the second customer was Amazon.
Management said it will invest to increase its capacity to manufacture large megawatt generators "to add further capacity as our pipeline of opportunities materializes."
Generac maintained its full-year guidance for sales growth in the mid-teens percentage range, but raised its net income margin to a range of 9% to 10%, up from 8% to 9%.
About Amazon stock
Amazon has been doubling down on its AI build-out for several quarters, and recently increased its planned capex from $200 billion to $220 billion this year. The company has a lot on the line -- AWS has a 28% of the global cloud computing market, making it the industry leader, and its AI services business topped a $25 billion annualized run rate as it signed new deals with a variety of companies, including Pinterest, Snowflake, and Moody's.
In addition, Amazon has become an important chip supplier. Its Trainium chips (for AI training) and Graviton chips (for general cloud computing and agentic AI) grew by triple-digit percentages over the last year, and also topped a $25 billion annual run rate.
The company's AI business is becoming increasingly important for Amazon, which saw quarterly revenue top $200 billion, up 19.6% from a year ago. AWS sales accounted for $42.2 billion of that total, up 36.7%. And it generated $16.6 billion in operating income, more than Amazon's larger e-commerce business mustered.
Why the deal matters for Amazon
Signing contracts for backup data center generators isn't sexy -- but it's important. Training AI models requires hundreds of thousands of chips to run for weeks or months at a time, and Amazon can't maintain its market leadership as a hyperscaler if its data centers' power supplies are at risk. Amazon's stock is up only 2% today, but deals like this with Generac will help it remain a leading AI company.
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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Moody's, Pinterest, and Snowflake. The Motley Fool has a disclosure policy.
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