The data center arms race extends to power infrastructure as Amazon signs a $8 billion, seven-year strategic agreement with Generac

Backup generator manufacturer Generac has reached a long-term supply agreement with Amazon worth up to $8 billion over seven years, driving its pre-market share price to surge more than 30% at one point, marking the largest single-day gain since Bloomberg data began tracking in 2010.

According to the agreement, Generac will supply backup generators to Amazon's data centers and issue warrants to Amazon, allowing it to purchase up to 1.69 million Generac shares at $200.93 per share. The first deliveries under the agreement are scheduled for 2027-2028, amounting to approximately $2.4 billion, with an annual average of about $1.2 billion, providing clear demand support for Generac's previously planned capacity expansion.

More importantly, this deal ties Generac's fortunes to Amazon's data center expansion cycle. The market now recognizes that power demand driven by AI computing investments is spreading beyond GPUs, servers, and other computing hardware to also encompass generators, electrical grids, energy storage, and other peripheral power infrastructure.

The $8 Billion Order Is Not a One-Time Deal; Warrants Reinforce Long-Term Ties

The key to this agreement is not just the potential $8 billion in orders, but also the accompanying warrant arrangement, which signals long-term cooperation between the two parties.

According to the terms of the agreement, the warrants Amazon receives will be unlocked gradually according to cumulative purchasing milestones; Amazon will only receive all warrants if its cumulative purchases of diesel generators reach $8 billion. About 18% of the warrants will vest immediately upon contract signing.

Wells Fargo analyst Praneeth Satish pointed out that this arrangement means the partnership between Amazon and Generac is not limited to the initial $2.4 billion in orders for 2027-2028, but is designed to cover a much longer delivery period, constituting a clear endorsement of their long-term strategic cooperation.

For Generac, the certainty of order size and delivery period also provides a clearer demand basis for its capacity expansion. Previously, the market had doubts about whether the company could secure enough orders for expansion, but Amazon's large long-term procurement commitment provides much greater visibility into future revenue.

Earnings Expectations Revised Up, Data Center Orders May Change Valuation Logic

Wall Street analysts broadly believe that this agreement not only means incremental revenue but may also drive changes in Generac's earnings expectations and valuation logic.

William Blair industrials analyst Brian Drab called this seven-year deal a "major win" for Generac, estimating that it will boost the company's 2028 EBITDA by more than 20%. He believes that in a context where investors remain concerned about the sustainability of data center capital expenditures, this long-term agreement increases the visibility of Generac's future performance and also helps reduce the market's risk discount regarding its capacity expansion.

Before the announcement, Generac's stock price was around $175. Praneeth Satish previously estimated that the company's agreements with its first hyperscale data center and hosting customers alone would generate about $1 billion in stable annual revenue, justifying a fair value of around $185 per share—implying that the market was barely pricing in additional data center orders at the time.

Brian Drab also pointed out that before the agreement, Generac's stock was trading at about 10 times its estimated 2027 EBITDA, while the company's EBITDA growth is expected to exceed 20% annually for the next several years. With the Amazon orders materializing, the market may not only revise up earnings forecasts but also reassess the visibility and valuation of the company's future profits.

From AI Computing Power to Power Infrastructure: The Investment Chain Is Extending

The Generac-Amazon deal further extends the data center investment framework from "computing power" to "electric power".

As data center construction accelerates, power supply has become a key constraint for deploying new computing power. While backup generators are considered peripheral equipment for data centers, their demand is directly related to the scale of data center construction and power reliability requirements. Thus, Generac's securing of long-term orders from major tech companies indicates that AI infrastructure investment is spreading through a broader power equipment supply chain.

Apollo Head of Global Thematic Investments Rob Bittencourt previously stated that the reindustrialization process in the United States has already "started," and trillions of dollars in investment will be needed going forward, with a substantial portion concentrated in fields related to computing power. Generac's long-term order from Amazon further demonstrates that this wave of capital expenditure is not just benefiting chips, servers, and data center operators—it is also spilling into generator, grid, and other power infrastructure manufacturers.