Why American Superconductor Corporation Rallied Over 20% This Week
Key Points
Microsoft wrote a blog post touting the benefits of high-temperature superconductors as a way to alleviate electricity bottlenecks for AI data centers.
As one of the only public market "pure plays" on the technology, American Superconductor rallied.
Shares look expensive now, but not egregious if the technology takes off among electric utilities to combat AI power bottlenecks.
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Shares of American Superconductor Corporation (NASDAQ: AMSC) rallied 21.6% this week, according to data from S&P Global Market Intelligence.
American Superconductor didn't report any financial news this week. Still, the company rocketed higher on the back of a blog post from Microsoft (NASDAQ: MSFT), published on Tuesday, which touted the benefits of superconductor technology for AI data centers.
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Microsoft touts superconductors
On Tuesday, Microsoft's General Manager of Global Infrastructure Marketing, Alistair Speirs, published a blog post touting the benefits of high-temperature superconductors (HTS). In the post, Speirs noted that Microsoft is investigating HTS technology for use in its data centers.
Of course, as the company's name indicates, American Superconductor Corporation manufactures superconductors for advanced power transmission and military applications for the U.S. Navy.
Superconductors are metal alloys that can conduct electricity with little or no resistance. Compared with conventional power delivery systems such as copper or aluminum wires, superconductors can move greater amounts of power in a smaller form factor. Thus, if superconductors were used in for power delivery to modern AI data centers, Speirs claims this would greatly relieve pressure on utilities and power delivery systems which are now faced with overwhelming electricity demand.
While Speirs' blog post didn't specify if and to what extent Microsoft is deploying this technology, or whether it was working with any utilities to do so, he did write, "Only recently the economics and manufacturing aspects of this technology made it viable at Microsoft's cloud scale."
Image source: Getty Images.
American Superconductor is a high-risk, high upside play
To be clear, Microsoft didn't mention American Superconductor in its blog post. However, if superconductors are widely adopted to meet the energy-hungry needs of AI data centers, and if AMSC executes to deliver the technology to AI data center customers, the stock could have significant upside.
Last quarter, American Superconductor beat expectations on revenue and adjusted earnings per share, with revenue up 20% year-over-year to $74.5 million. While shares don't look "cheap" at 32 times next year's earnings estimates, American Superconductor is profitable today, which isn't always the case with next-generation technology companies. And if superconductors become widely adopted in AI data centers in the future, those earnings, as well as the stock price, could have significant upside.
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Billy Duberstein and/or his clients have positions in American Superconductor and Microsoft. The Motley Fool has positions in and recommends American Superconductor and Microsoft. The Motley Fool has a disclosure policy.
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