AI Data Center Power Demand And Military Energy Security Will Drive Long-Term Upside

Catalysts

About Hyliion Holdings

Hyliion Holdings develops and commercializes the KARNO Power Module, a distributed power generation system designed for efficient, low emissions and fuel-flexible electricity production.

What are the underlying business or industry changes driving this perspective?

• Rising demand for reliable on site power at AI driven data centers, combined with the industry shift toward 800 volt DC architectures that match KARNO’s native output, positions Hyliion to win high value deployments that can materially expand product revenue and improve operating leverage.
• Growing focus on clean, dispatchable generation and stricter air quality standards, which the KARNO system already exceeds without exhaust after treatment, supports pricing power and adoption in regulated markets that can enhance gross margins as volumes scale.
• Increasing investment in energy security by the U.S. military, including multi year KARNO programs and potential multi megawatt shipboard installations, underpins a long duration revenue stream with attractive contribution to earnings visibility.
• Expanding use of advanced manufacturing and optimization of Hyliion’s installed base of additive printers, after resolving key production bottlenecks, should drive unit cost reductions that support better net margins as commercialization ramps in 2026 and beyond.
• Policy incentives such as the 30 percent investment tax credit for KARNO systems over the next decade improve customer project returns, accelerating order conversion from existing letters of intent into system sales that can drive top line growth and operating margin expansion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Hyliion Holdings's revenue will grow by 221.5% annually over the next 3 years.
• Analysts are not forecasting that Hyliion Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Hyliion Holdings's profit margin will increase from -888.1% to the average US Electrical industry of 11.2% in 3 years.
• If Hyliion Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $21.7 million (and earnings per share of $0.12) by about June 2029, up from -$51.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 79.3x on those 2029 earnings, up from -16.8x today. This future PE is greater than the current PE for the US Electrical industry at 40.0x.
• Analysts expect the number of shares outstanding to grow by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Hyliion remains pre commercial with only research and development services revenue of $4 million expected for 2025 and first KARNO system sales pushed to 2026. Any further delays in UL certification, customer field trials or Navy deployment could postpone commercialization and materially depress revenue growth and earnings.
• The business model depends heavily on scaling additive manufacturing and securing hard to source high strength magnets from an uncertain supply environment in China. Any sustained supply chain disruption or failure to increase printer throughput could constrain shipments, inflate production costs and pressure gross margins and future net margins.
• Nonbinding letters of intent covering nearly 500 KARNO Cores may not convert to firm purchase orders if early field trials underperform, competing distributed generation technologies improve or customer priorities shift. This would undermine the assumed demand pipeline and limit long term revenue expansion and operating leverage.
• Hyliion is investing heavily with year to date operating expenses of $50.7 million and a year to date net loss of $44 million. If commercialization ramps more slowly than expected or pricing does not fully reflect the technology’s advantages, ongoing losses could erode the current $164.7 million cash balance and force dilutive capital raises that weigh on earnings per share and shareholder value.
• The growth thesis is tied to secular trends such as AI driven data center build outs, military energy security and small modular reactor adoption. Any cyclical slowdown in data center capital spending, shifts in military budgets or delays in SMR deployment could reduce project volumes versus expectations and lead to lower long term revenue, weaker net margins and subdued earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $7.0 for Hyliion Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $193.4 million, earnings will come to $21.7 million, and it would be trading on a PE ratio of 79.3x, assuming you use a discount rate of 9.4%.
• Given the current share price of $4.86, the analyst price target of $7.0 is 30.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.