In commercial risk management, a simple adage is often cited: don't put all your eggs in one basket. This adage seems to describe Granite Construction's current strategy—the Watsonville, California-based contractor is actively expanding into the booming data center market while ensuring it maintains its existing strengths in the broader infrastructure sector.

During its second-quarter earnings call on Thursday (Eastern Time), Granite disclosed that its backlog from data center customers had grown to $223 million as of the end of June, up from $65 million a year earlier, more than tripling. The company has established a dedicated division internally for this sector, undertaking work that includes site preparation and road construction leading to these large facilities.

Diversified Business Foundation

Although Granite has set a goal for data center customers to contribute 10% of revenue, the company stated it will continue to focus on other construction segments in both the public and private sectors, as well as the business of supplying materials for these projects.

"I am confident that the strength of our public and private end markets, combined with the strategic actions we have taken, positions us well to continue achieving revenue growth across our footprint," said Kyle Larkin, Granite's President and CEO, during the call. "Whether serving data center site development, intermodal rail infrastructure, federal projects, or our core transportation market clients, our teams have the capability to deliver."

Highway Funding Faces a Bumpy Road Ahead

Looking ahead, Granite may indeed need this diversification strategy. The $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), passed in 2021, is set to expire on September 30, and lawmakers have proposed cutting public transit funding by 22% in a temporary one-year appropriations bill, while also reducing funding for Amtrak and Capital Investment Grants.

Meanwhile, "Build America 250" (BA250), the proposed successor to the IIJA, is currently competing with other legislative priorities. Against this backdrop, Larkin expressed optimism about the current proposal.

"While BA250 does not currently contemplate a significant increase in highway funding, we view the draft positively because it shifts the funding structure toward formula-based grant programs and bridge investments, while reducing emphasis on large discretionary mega-projects," Larkin said. "We believe this funding approach aligns well with Granite's geographic coverage and capabilities."

In fact, Granite's "de-risking" portfolio strategy in recent years has included taking on more smaller-scale, shorter-duration work packages with better financial visibility. Larkin said the company reduces risk and volatility by pricing based on 100% design. "We also limit our pricing risk exposure by keeping contract durations under four years," Larkin added.

Key Data at a Glance

Granite reported second-quarter revenue of $1.46 billion, up 29% year-over-year. The company's backlog (internally referred to as "Committed and Awarded Projects," or CAP) also grew to $7.4 billion, a 23% increase from $6.0 billion in the same period last year.

This momentum prompted the company to raise its full-year revenue guidance by $100 million. Originally set at a range of $5.2 billion to $5.4 billion for fiscal 2026, the company now expects full-year revenue to be between $5.3 billion and $5.5 billion.

"Given the strong performance in public and private infrastructure markets, we expect to continue achieving high levels of organic growth through the second half of 2026 and into 2027 and beyond," said Staci Woolsey, the company's Chief Financial Officer, in a press release.

Despite the positive factors above, the company still recorded a net loss of $278 million, compared to a profit of $72 million in the same period in 2025. The company stated that the loss was primarily due to a $360 million non-operating expense related to restructuring outstanding debt.