The AI and Defense Boom is a Windfall for Rolls-Royce

Rolls-Royce has raised its full-year profit and cash flow guidance after reporting strong first-half results, driven by robust demand across its civil aerospace, defense and power systems businesses as governments increase military spending and technology companies expand AI data center infrastructure.

The British engineering company said underlying operating profit for the six months ended June rose 46% to 2.5 billion pounds ($3.3 billion), while revenue increased more than 24% to 11.3 billion pounds.

The company now expects full-year underlying operating profit of between 4.7 billion pounds and 4.9 billion pounds, compared with previous guidance of 4 billion pounds to 4.2 billion pounds. It also lifted its free cash flow forecast to between 3.8 billion pounds and 4 billion pounds, from an earlier range of 3.6 billion pounds to 3.8 billion pounds.

Shares in Rolls-Royce rose as much as 6% in early trading before easing to trade about 4% higher.

The upgraded outlook reflects growing demand for the company’s products across two fast-growing markets: defense and power systems supporting AI-driven data centers.

Chief Financial Officer Helen McCabe said orders in Rolls-Royce’s data center power business rose by more than 50% in the first half as operators sought backup and on-site power solutions to address electricity grid constraints.

She also said increased military spending was creating additional opportunities for the company, pointing to Britain’s long-term defense investment plans and NATO’s push for higher defense expenditure.

“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.

Chief Executive Tufan Erginbilgic said the company’s turnaround strategy continued to deliver results, broadening its sources of growth beyond commercial aviation.

“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.

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