Power Solutions International, Inc. (PSIX): A Bull Case Theory

We came across a bullish thesis on Power Solutions International, Inc. (PSIX) on Substack by LongTermValue Research. In this article, we will summarize the bulls’ thesis on PSIX. Power Solutions International, Inc. (PSIX)’s share was trading at $25.92 as of April 1^st. PSIX’s trailing P/E was 8.61 according to Yahoo Finance.

A generator being fueled and readied for use as part of an end-to-end green hydrogen ecosystem.

Power Solutions International (PSIX) is a manufacturer of engines and power systems, with a strategic pivot toward the high-growth datacenter power generation market. As a 51%-owned subsidiary of Weichai Power, PSIX has historically operated in various industrial segments but is now focusing its manufacturing capacity on backup power solutions for AI-driven datacenters. This transition is reshaping the company’s financial profile, driving significant revenue growth and margin expansion. The power systems segment, which includes natural gas and diesel-powered electric generators, has surged from 49% of sales in 2023 to 68% in 2024, with a remarkable 62% year-over-year growth in Q4. AI datacenters, requiring uninterrupted power for peak computing demands, present a massive and long-term opportunity. In response to this demand, PSIX has been expanding its production capacity, breaking ground on a 100,000-square-foot manufacturing expansion in Darien, WI.

The broader datacenter buildout trend is expected to sustain robust growth, with hyperscalers projected to increase capital expenditures by over 40% in 2025. This surge underscores the urgency for reliable power generation solutions, and PSIX’s new product lineup—including a 22-liter natural gas engine and generator enclosures capable of housing 5MW of power—positions the company as a prime beneficiary. Despite this momentum, PSIX remains significantly undervalued, trading at just 6.0x its 2025 earnings estimates, well below peers like Caterpillar (CAT) and Cummins (CMI), which trade at 9-15x P/E. This valuation disconnect provides a compelling investment opportunity, particularly as PSIX transitions from a traditional industrial company into a specialized, high-growth datacenter power supplier.

Management has been proactive in optimizing the company’s financial position. Recent catalysts include refinancing its credit agreement at a lower interest rate, up-listing to NASDAQ, and paying down ~$35 million in debt, with expectations to reduce net debt to a mere 0.25x EBITDA by August 2025. With an anticipated $90 million in free cash flow for 2025, PSIX could soon initiate share buybacks or dividends, further enhancing shareholder returns. The transition to a higher-margin business is evident, with gross margins expanding from 9% in 2021 to 30% in 2024. As power generation surpasses 80% of revenue by 2027, EBITDA margins are projected to reach 25%, driving a substantial valuation re-rating.