MEC's Data Center Pivot: Capacity Reservations and a Southeastern Bet

The Demand Inflection

Mayville Engineering Company, Inc. (MEC) reported its second quarter 2026 results, and the story is unmistakably about the capacity reservation dynamics reshaping its future. The company posted total sales growth of 23.2% year-over-year to $163 million, with organic growth of 9.2% as data center and critical power (DCP) revenue surged 173% organically. The momentum is not fleeting: the company now expects DCP to represent approximately 20% of total revenue in 2026, up from single digits a year ago. As Jagadeesh Reddy noted in his opening remarks, “Our second quarter results reflect stronger-than-expected demand across several key end markets. This was highlighted by continued momentum in data center and critical power and the early recovery underway in our commercial vehicle market.” — Jagadeesh Reddy, President and CEO · 2026-08-05

The DCP pipeline stands at over $125 million, and the company secured roughly $40 million in new awards during the quarter, including power distribution units, switchgear, and static transfer switches. These are not isolated wins—management explicitly said that bookings in 2026 are expected to exceed $150 million across all end markets. The shift is structural: as Jag remarked on the Q&A, “In the data center market, some of the significant wins we had in Q1 actually came from two brand-new customers to Mayville Engineering Company, Inc. and AccuFab.” (from prior call, component 7419561595289964245).

Margin Pressure and Temporary Costs

Despite the top-line surge, margins are under pressure from deliberate investments. Manufacturing margin improved to 10.9% from 10.3% a year ago, but adjusted EBITDA margin declined to 8.1% from 10.3%, largely due to $2.1 million of project launch costs and higher gain-sharing accruals. Rachele Lehr explained, “The decrease reflects $2.1 million of project launch costs and higher gain-sharing accruals due to the current company performance and the expansion of our workforce, partially offset by the benefit of the Accu-Fab acquisition and higher legacy end-market volumes.” — Rachele Lehr, Chief Financial Officer · 2026-08-05 The company also faces a temporary outsourcing costs issue—it is outsourcing laser cutting, brake press work, and painting because internal equipment and labor are constrained. Jag elaborated in the Q&A: “We put together an upfront fee structure, we have also discussed volume commitments and we continue to explore these options.” — Jagadeesh Reddy, President and CEO · 2026-08-05

These costs are expected to persist through the second half but should subside as new capital equipment arrives (with 4-6 month lead times) and a newly hired workforce reaches full productivity. The company expects an additional $2-3 million of outsourcing costs in H2, on top of $5-6 million of launch-related costs for the full year. The gross margin trend illustrates the pressure: Gross margin has been trending down over the past eight years, from 15.3% peak in 2018 to 7.6% in the latest quarter, a 42% drawdown. The near-term mix shift toward DCP and the temporary costs are compressing margins further, but the company argues these investments will unlock higher margins as volumes ramp.

A New Business Model and the Southeastern Facility

Perhaps the most intriguing change is the company's exploration of new facility opportunities in the Southeast, combined with a radical idea: allowing customers to reserve dedicated capacity. Jag described the initiative, noting that conversations are already underway with DCP customers. “We have had to say no to some small programs. We have had to say no to some opportunities, because we are, right now, in the next 12 months as we project out our capacity utilization...” (

We are already making some calls on which programs to walk away from, which programs we need to exit. These choices will help us in the long run to improve our mix, improve our profitability, and continue to push up our expectations for our margin profile.

Financially, the company is allocating $40-50 million of incremental capital over two years (plus $10 million of leased equipment) to expand capacity, which could lift revenue capacity from $850 million to beyond $900 million. A new facility in the Southeast, costing $25-30 million, could add another $50-60 million in revenue. The company is targeting a decision by late 2026. This is a clear strategic pivot from its legacy cyclical roots into a secular growth story tied to the data center buildout. As Jag noted on an earlier call, “We have seen signals from our OEMs in the last month or so inquiring us and other suppliers about capacity, utilization, and we have seen signals from them of potential build rate increases.” — Jagadeesh Reddy, President and CEO · 2026-03-04

A Bet on U.S. Manufacturing in a Global Theme

MEC is not alone—the global trajectory reveals a widespread theme of data center and critical power investments. The tape history shows heavy volume in keywords like "data centers" and "high performance computing" across many companies. But MEC's story is unique in its scale: a $490 million market cap company with a breakout opportunity to ride the AI infrastructure wave. The stock’s recent pattern has been volatile—up 72% over nine weeks, then down 41%—reflecting the market's attempt to price in this transformation.

The company's fundamentals show the strain: operating income turned negative in the latest quarter, and free cash flow was a use of $6.6 million, but the balance sheet was strengthened by a $94 million equity offering, reducing net leverage to 2.9x. The guidance raise—net sales of $620-650 million—signals confidence that the DCP ramp will continue.

What matters is that MEC is transforming from a cyclical metal fabricator into a strategic partner for the data center economy. The company is effectively selling certainty of supply in a capacity-constrained market, and it is investing ahead of demand. Whether that will translate into sustained margin expansion remains to be seen, but the direction is unmistakable.