Fluency: Promising Signs (NASDAQ:FLNC) | I’m looking for Alpha

fluency (NASDAQ:FLNC) has seen a plethora of good news lately, from strong quarterly results to likely interest rate cuts. As a result, Fluence has seen its share prices skyrocket over the past month. While the company’s short-term outlook looks bright, the company’s the long-term outlook is even stronger. The convergence of low-cost intermittent renewables and generative AI will set in motion an unprecedented increase in demand for large-scale energy storage technologies.

Fluence has seen its stock skyrocket in recent weeks.

Strong results in Q3

Fluence reported strong results in the third quarter, exceeding even the most optimistic expectations. The company reported revenue of $483.3 million, beating expectations by $20.52 million. This translated into positive GAAP EPS of $0.01, which beat expectations by an impressive $0.13. As a result, Fluence’s Q3 marked one of the few quarters in which the company was able to turn a profit. While the company’s total revenue fell nearly 10% y/y, this decline could be attributed to seasonality.

Fluence also added $1.3 billion in new contracts, which set a quarterly record and brought the company’s backlog to $4.5 billion. Additionally, the company is starting to see its services and digital businesses gain momentum, as these divisions contributed $80 million in annualized recurring revenue during the quarter. Demand for Fluence’s BESS (Battery Energy Storage System) products and services is clearly starting to pick up, despite the increasingly competitive landscape.

Fluence improved its financials in Q3.

Neutral player

While Fluence owns some of the leading BESS technologies in the industry, the company’s main advantage is undoubtedly its positioning as a neutral player. In an industry full of Chinese competitors and conflicting domestic players, Fluence is unique in its ability to remain neutral. Chinese competitors pose obvious risks to BESS customers on the geopolitical front. It is highly unlikely that major American corporations would entrust Chinese companies to play such an important role in building billions of dollars worth of critical energy infrastructure, for obvious reasons.

On the other hand, Fluence’s main domestic competitor, Tesla ( TSLA ), may face an even tougher time attracting large domestic customers. After all, many of BESS’s biggest customers are large technology companies that are involved in businesses in which Tesla also competes. For example, Tesla’s efforts to build frontier AI models directly threaten major data center players like Alphabet (GOOGL) or Microsoft (MSFT). Moreover, Elon Musk has insulted or belittled almost every major technology company, and often the CEOs of those companies themselves. This only adds one more reason to why these companies will be incredibly hesitant to work with Tesla.

Fluence has none of these issues as a neutral player in the BESS space. In fact, it can be argued that Fluence has been incredibly adept at attracting business from big players like Alphabet. This will give Fluence a key advantage as power consumption is increasingly entrenched among the largest companies, especially with the rise of cloud computing and incredibly capable frontier AI models.

Interest rates

The renewables industry is particularly sensitive to interest rates because the economics of the entire project vary dramatically with interest rates. With the Fed indicating that interest rate cuts are likely sooner rather than later, Fluence could see demand for its BESS products and solutions skyrocket. With energy storage becoming an increasingly vital component of intermittent renewable technologies such as solar and wind, Fluence is in an excellent position to benefit from interest rate cuts.

AI could also act as a deflationary force given its ability to increase productivity in a wide variety of sectors. This could put even more pressure on the Fed to cut interest rates to an even higher rate, which could further catalyze BESS demand. As frontier models become more capable, their ability to increase productivity will likely be a key demand driver for the Fluence.

risks

The BESS industry is beginning to attract higher caliber competitors as a result of its growth potential. In fact, BESS was a major focal point in Tesla’s recent conference call following its performance last quarter. Tesla also plans to dramatically ramp up its BESS production with its $10 billion Shanghai Megapack factory. Such large investments in the BESS space by competitors like Tesla will have a negative impact on Fluence demand.

Fluence is also a relatively small player compared to other companies in the space. This means that the company will not be able to invest in research and development or expand capacity at the same rate as its larger competitors. Despite this, the BESS market will likely have more than enough room for Fluence and a few big competitors. Moreover, Fluence already has a head start in this industry and has cultivated a good reputation in this space.

Conclusion

Fluence is one of the most promising energy and AI on the market. Fluence currently has a P/S ratio of 1.13 on its current market cap of $3.34 billion, which is low given Fluence’s leadership position in an incredibly high-growth industry. While concerns about Fluence’s profitability likely play into its low valuation, the company’s positive net income in Q3 should help alleviate those concerns. Fluence is in a prime position to ride the renewable and AI waves as a technology and market leader in the BESS space.