Maybe it's the result of investors' unbridled passion for artificial intelligence (AI). However, it's possible for some stocks, credible ones at that, to post significant rallies and still slip through the cracks.
Up 82% year to date and most certainly not an AI stock in the traditional sense, Generac (GNRC +1.92%) isn't leading an outright anonymous existence, but it's also fair to say that if this were a technology stock, it'd be garnering considerably more fanfare.
The other side of the coin is that, with the stock having nearly doubled over the past 12 months and trading near 52-week highs, it might be "priced to perfection," and some market observers argue for subdued returns over the next couple of years. Let's see if Generac has the potential for upside surprises.
Image source: Getty Images.
A derivative AI trade
From its February 2010 public debut through its March 2021 S&P 500 inclusion and for a few years beyond, Generac was widely known as a manufacturer of backup power generators for commercial and residential buildings. If your lights and air conditioning go out during a storm, it's nice to have a Generac generator to keep those essentials running.
Guess what other buildings need backup power supplies? AI data centers, and that goes a long way toward explaining the breathtaking rally notched by Generac shares. Data center demand is a primary reason the company's commercial and industrial segment tallied a first-quarter sales increase of 28%, increased 2026 guidance, and a backlog of more than $700 million.
All of that sounds positive, and it is, but there are risks to consider with this industrial stock. First, the aforementioned positivity is likely baked into Generac shares. Financial markets are forward-looking, meaning there's a burden on Generac to impress in the future, not rest on its laurels.
NYSE: GNRC
Key Data Points
Second, Generac's status as a backdoor AI play could make the stock vulnerable at a time when some experts are expressing concern that the AI trade is spreading too widely across the broader market.
Generac can generate growth
Those risks shouldn't be ignored, but that doesn't mean it's time to be overly bearish on Generac. That could be a losing bet, given the company's enviable track record of execution. From 2000 through 2025, Generac posted a compound annual growth rate (CAGR) of approximately 14%. That's impressive, given that the law of large numbers eventually acts as a headwind for mature growth companies.
That growth may continue, driven by data center demand, which could surprise to the upside. As Generac notes, data center backup power is "mission critical," meaning hyperscalers aren't shelling out billions of dollars on data centers only to be caught flat-footed in the event of a natural disaster.
Not only is backup power mission-critical, but data centers also expand Generac's total addressable market (TAM) by billions of dollars. Fortunately, data centers account for only a small share of the $100 trillion in global infrastructure spending needed through 2040. Even a small slice of that pie could be a long-term catalyst for Generac, perhaps signaling that a near-term pullback could morph into a buying opportunity.
