Herc Holdings, the $6.3 billion equipment rental operator spun out of Hertz in 2016, is tilting its fleet composition toward data center buildouts. The move follows three consecutive quarters of elevated capital expenditure—$487 million in Q3 alone—directed at specialized cooling towers, temporary power distribution units, and modular HVAC systems that data center contractors rent during facility commissioning.
The company reported data center-adjacent revenues grew 23% year-over-year in the most recent quarter, now representing roughly $340 million annualized. That compares to flat growth in traditional construction equipment rentals, where utilization rates have hovered near 72% since mid-2023. Management disclosed on the October earnings call that it expects data center infrastructure to account for 18-22% of total rental revenue by end of 2025, up from 11% today. The shift is mechanical: hyperscalers and their contractors need redundant cooling and power systems on-site for 9-14 months during construction, and they prefer rental over ownership for assets that sit idle after commissioning.
This matters because Herc is effectively buying exposure to a $50 billion annualized data center construction cycle without taking development risk. Gross margins on data center rentals run 41-44%, compared to 37-39% on traditional earthmoving and aerial equipment, due to longer rental durations and lower damage rates. The company has also signaled acquisition intent: it holds $1.1 billion in undrawn revolver capacity and recently amended its credit facility to allow for purchases up to $750 million without incremental lender approval. That positions Herc to consolidate smaller regional rental operators that already own diesel generators, chillers, and PDUs but lack national account relationships with the five largest data center contractors.
The risk is timing. If hyperscaler capex plateaus—Meta, Microsoft, and Google collectively guided to $210 billion in 2025 infrastructure spend, up 19%—Herc will own a fleet optimized for a cycle that peaked. The company's fleet age already sits at 52 months, the oldest among the top four North American rental operators, and specialized data center equipment depreciates faster than traditional construction gear. Management has committed to fleet age below 48 months by Q2 2026, which implies another $600-800 million in equipment purchases over the next five quarters. That assumes used equipment pricing holds, which is not assured if rental demand softens.
Operators should watch Herc's utilization rate on power and HVAC equipment, reported monthly in the investor supplement, and any M&A filings with the DOJ Hart-Scott-Rodino division. The company has a history of bolt-on acquisitions—it bought $140 million of regional fleets in 2022-2023—but nothing above $300 million. A deal in the $500-700 million range would signal conviction that data center build velocity sustains through 2026. The next incremental data point is the January capex guidance update, typically issued in the first week of the month.
Herc's stock trades at 9.2x forward EBITDA, a 1.8-turn discount to United Rentals, despite comparable leverage and higher near-term growth. The discount persists because the market prices in execution risk on fleet repositioning and questions whether a $6 billion operator can move fast enough to capture share before larger competitors match the strategy. The answer arrives in twelve months, when the mix shift either shows up in incremental margin or in elevated maintenance capex that offsets the benefit.