Rolls-Royce says defense, data centers and nuclear underpin next phase of growth
Rolls-Royce is deepening its exposure to the AI infrastructure boom, with the British engineering group forecasting that continuous power systems could account for as much as one-fifth of its power-generation business by 2030 as data centers struggle to secure grid connections.
CEO Tufan Erginbilgic said Thursday the company is already discussing power systems and small modular reactors with hyperscaler data center operators, and expects to seek internal approval for a major customer framework agreement.
“Early next week, in [the] investment committee, we are going to sign another big hyperscaler sort of deal,” Erginbilgic said in a call with analysts. “We are already taking orders for data centers for [2028].”
Rolls-Royce is simultaneously benefiting from higher global defense spending, giving the company exposure to two of the largest investment cycles in international markets: the defense boom and the AI buildout.
In power generation, Rolls-Royce is seeing increasing demand for both backup engines and gas engines for use as a prime power source for data centers.
As a result, it now expects 25% annual growth in power generation revenue to 2030, up from a target of 20% previously, and up from less than 10% today.
Traditionally, Rolls-Royce sold mostly backup generators that sat idle until the electricity failed. Now, AI data centers increasingly want engines that generate electricity around the clock because they can’t get connected to the grid. For Rolls-Royce, that means not only more engine sales but years of additional, high-margin maintenance work.
Beat-and-raise quarter
The company also hiked its full-year profit and cash flow guidance after strong earnings for the first half of the year, benefiting from robust demand across its civil aerospace, defense and power systems businesses.
The FTSE 100 company posted underlying operating profit of £2.5 billion ($3.3 billion) for the first six months of the year, up 46% from a year earlier, while revenue rose over 24% to £11.3 billion.
Rolls-Royce said it now expects full-year underlying operating profit of between £4.7 billion and £4.9 billion, up from previous guidance for between £4 billion and £4.2 billion. It sees free cash flow of £3.8 billion to £4 billion, up from between £3.6 billion and £3.8 billion previously.
Rolls-Royce shares over the past five years.
Shares rose as much as 6% and were trading 5.5% higher in midday trading, while the FTSE 100 traded flat, and the pan-European Stoxx 600 index was 0.4% higher.
The stock is up more than 1,300% over the past five years, and 21% year-to-date, amid the company’s broadening growth profile under Erginbilgic’s turnaround strategy.
Defense boom
Speaking exclusively to CNBC after the results, Chief Financial Officer Helen McCabe said orders in the company’s data center power business grew more than 50% in the first half of the year as operators increasingly sought backup and on-site power solutions amid grid constraints.
She also pointed to growing opportunities from higher defense spending, citing long-term commitments under the U.K.’s defense investment plan and NATO’s push for greater military investment.
“We’ve had very positive initial conversations with the new [U.K.] government, and we absolutely support their focus on growth, defense, and advancing industrial manufacturing, and we look forward to supporting them in that and playing our role,” McCabe said, adding that the defense investment plan provides certainty on funding plans to 2030 and beyond.
While Rolls-Royce has traditionally been viewed as an aerospace manufacturer tied to the recovery in long-haul aviation, it is increasingly positioning itself as a supplier to both the AI infrastructure buildout through its power systems division and the global rearmament cycle.
“Our transformation continues to deliver,” Erginbilgic said in a statement, adding that the company had “unlocked new growth opportunities across the Group” and built a more resilient and diversified portfolio.
Its defense business saw organic revenue growth of 17% in the first six months of the year, while underlying profits grew 57%. That business tends to be “multi-generational,” McCabe said, while its power systems unit is also seeing a boost from governments’ increased military spending with shorter investment cycles.
Power systems grew revenues by 28% on an organic basis and profits by 72%, driven by data center power demand.
Its largest segment, civil aerospace, which includes the jet engines that power large Airbus and Boeing aircraft, grew revenue by 29% and profits by 31%.
