Why American Superconductor Stock Jumped 58.2% in April
Key Points
American Superconductor sells electrical equipment that utilities need for growing AI needs.
The company should see a nice tailwind for years to come.
Shares of the stock look inflated despite these tailwinds due to its thin gross margins.
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Shares of American Superconductor (NASDAQ: AMSC) jumped 58.2% in April, according to data from S&P Global Market Intelligence. The little-known company is roaring, up over 200% in the last five years to a market cap of $2.5 billion, driven by increasing demand for its power solutions for artificial intelligence (AI) infrastructure.
As power demands for AI workloads continue to grow, investors kept buying American Superconductor stock in April. Here's why the stock price was soaring, and whether it is a buy today.
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Increasing demand for power grid solutions
Many readers will already know about the increased strain the AI data center builders are putting on the power grids in the United States. American Superconductor's product suite helps manage the power grid by linking substations together and stabilizing voltages across networks. As electricity demand grows in the United States, we will likely see greater demand for these products.
American Superconductor's revenue has grown by 206% over the last five years, and investors believe this trend will continue due to demand for AI workloads. This has turned the stock into a "bottleneck" play for investors seeking the next beneficiary of the AI boom. With increasing bullish sentiment on AI spending in late April, the stock began to rise again.
What's more, American Superconductor is now free cash flow positive, allowing it to self-fund expansion plans.
Image source: Getty Images.
Should you buy American Superconductor stock?
With plans for AI spending set to grow in 2026 and beyond, I have no doubt that American Superconductor's revenue will continue to grow above its trailing $280 million level. However, given its profit margin profile, there are doubts about whether American Superconductor can sustain its current market cap of $2.5 billion.
Gross margin for its power solutions was 30% over the last twelve months. This is at a time when supply shortages are enabling all players in the AI supply chain to increase prices. American Superconductor will likely not be able to achieve much higher than a 10% net income margin, even at a larger scale, due to these slim gross margins.
If revenue more than doubles to $600 million, American Superconductor would generate $60 million in net income, or a price-to-earnings ratio (P/E) of 42 based on its current market cap. This will make it a difficult hurdle to generate solid forward returns for shareholders, making the stock one to avoid despite it being an AI beneficiary.
Should you buy stock in American Superconductor right now?
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Superconductor. The Motley Fool has a disclosure policy.
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