Small-Engine Makers Join AI Frenzy --- For data centers looking for off-grid power, small engines are cheap and readily available

“A few years ago, the idea of using hundreds of small engines to power gigawatts of data-center capacity would have seemed ridiculous. Not so today.

 

More hyperscalers are seeking to hook their data centers to off-grid power, bypassing lengthy wait times to connect to the grid. Many of them are looking to smaller natural-gas turbines that have shorter wait times than the heavy-duty ones. But even these are selling out, and reciprocating engines are gaining more traction, said Musfika Mishi, an analyst at BloombergNEF. Reciprocating engines are the type that power cars and cruise ships.

 

Among U.S. data-center projects tracked by BloombergNEF that plan to use on-site natural gas and have disclosed timelines, about 55% expect to use gas turbines and 29% plan on using reciprocating engines.

 

Compared with turbines, reciprocating engines tend to be smaller, less efficient, more emissions heavy and require more frequent maintenance. But they are more readily available.

 

Lead times for engines can range from one to two years, while aeroderivative turbines can take up to three years, according to BloombergNEF. Some heavy-duty, utility-scale turbines have wait times of seven to eight years.

 

Innio, which made its public market debut in June, makes the most popular reciprocating engines for data centers. Among global data centers that plan to use natural-gas-fueled power on-site, about 8.3 gigawatts worth of projects plan to use Innio's Jenbacher engines, according to BloombergNEF. Vantage Data Centers, for example, plans to use 620 units of Jenbacher engines -- with a total capacity of 2.58 gigawatts -- at its Stargate Frontier campus in Texas, according to Cleanview, a data firm. Rolls-Royce and Caterpillar make the next two most popular engines, with 3.7 gigawatts and 3.6 gigawatts respectively of engines linked to announced data-center projects.

 

Innio reported that sales to data centers more than doubled in its first quarter compared with a year earlier. Caterpillar said in its latest earnings call that its order backlog of reciprocating engines, which are also used by other industries such as oil and gas, rose by more than 3.5 times. Aircraft-engine maker Rolls-Royce said data-center revenue increased 35% in its last quarter of 2025.

 

Reciprocating engines have other advantages. They have quicker response times than turbines, which can be useful for data centers that have huge swings in power usage. This quick-ramp ability also means they need less batteries on-site to manage big, frequent swings.

 

They are better suited for hot climates such as Texas, which is where more data centers are being built because of access to natural gas, according to industry experts. Compared with turbines, engines lose less efficiency as temperature rises. They also don't have heavy water requirements for cooling.

 

At the moment, they are also the cheapest option for data centers looking for off-grid, natural-gas-fueled power. BloombergNEF estimates that an engine-based system for an off-grid data center costs about $103 per megawatt hour over a 30-year span. That compares with $106/MWh to $109.50/MWh for turbine-based systems and $140/MWh for fuel cells.

 

The frequent maintenance schedule is itself a lucrative opportunity. Data centers have higher usage rates on engines and could generate 2.5 times more revenue than Innio's existing base of customers, according to a report from RBC Capital Markets. Innio's margins based on earnings before interest, taxes, depreciation and amortization were about 29% for services and 15% for equipment last year.

 

Innio, Caterpillar, Rolls-Royce and Cummins make high-speed reciprocating engines that have competitive advantages for data-center applications. These engines are small and energy-dense because they were designed to fit into trucks and smaller ships. Because these engines are smaller, they can be containerized, prefabricated and quickly installed on site. Innio said in its S-1 filing that it takes three months to install its engines.

 

Medium-speed engines -- such as those made by Wartsila and Everllence -- tend to be used on cruise ships and containerships and are considerably heavier relative to their energy capacity. Installing and commissioning can take up to 10 months, according to a report from SemiAnalysis.

 

However, medium-speed engines are more efficient, function better at high altitudes and don't need to be overhauled as often as high-speed engines, according to Troy Patton, general manager at AlphaStruxure, which runs on-site energy systems for data centers.

 

Among the reciprocating-engine makers, Innio's business is the most leveraged to data centers and the power sector. The company's natural-gas-fired engines are designed specifically for on-site or backup power, not for ships or trucks. Innio said that data centers accounted for 61% of its equipment orders in the 12-month period through the first quarter.

 

The biggest question looming over the sector is whether there will be a manufacturing overbuild. Caterpillar has said that it would increase its turbine manufacturing by 2.5 times and that it would increase its large reciprocating engine capacity to three times its 2024 levels. Innio plans to triple its manufacturing capacity to about 10 gigawatts by 2030, according to a report from RBC Capital Markets.

 

Big equipment manufacturers such as GE Vernova and Siemens Energy have been cautious about their expansion plans, still haunted by memories of a painful power-equipment boom-and-bust cycle in the early 2000s. The bigger unknown is how the universe of smaller-equipment manufacturers will behave going forward. These companies weren't major players in the power industry during that cycle and have a lot of engine capacity that can be repurposed.

 

There are about 15 gigawatts of engine-manufacturing capacity that is dedicated to the power sector, but manufacturers across the board have the capacity to make 250 gigawatts across all types of engines, such as for marine and other heavy-duty uses, according to a report from Thunder Said Energy. It would only take a minor investment to repurpose some of that engine capacity for data centers, according to the report.

 

A moderate overbuild might be manageable. In an oversupplied market, data-center customers are likely to "shift from making purchase decisions based on what's available to prioritizing the best technology," according to RBC.

 

Innio is the least diversified equipment maker, but sector analysts say its Jenbacher engines feature the best technology, with fast ramp times and the biggest high-speed engine capacity -- up to 5 megawatts -- compared with peers.

 

Meanwhile, diversified companies such as Caterpillar, Rolls-Royce or Wartsila could repurpose their engine manufacturing for their traditional customers if data-center orders start drying up.

 

So far, investors seem to like Innio's high data-center exposure. After its stock has risen 46% from its initial public offering price, Innio's enterprise value is roughly 34 times forward earnings before interest, taxes, depreciation and amortization. That is pricier than diversified equipment makers Caterpillar and Rolls-Royce, both of which have multiples below 30 times, but cheaper than turbine giant GE Vernova.

 

Engine makers' prospects look bright today. But in such a crowded field of enthusiastic players, investors need to look out for signs of exuberance.” [1]

 

1. Small-Engine Makers Join AI Frenzy --- For data centers looking for off-grid power, small engines are cheap and readily available. Lee, Jinjoo.  Wall Street Journal, Eastern edition; New York, N.Y.. 02 July 2026: B15.