We came across a bullish thesis on Nextracker Inc. (NXT) on Substack by Canopy Research. In this article, we will summarize the bulls’ thesis on NXT. Nextracker Inc. (NXT)'s share was trading at $44.60 as of May 8th. NXT’s trailing and forward P/E were 11.01 and 11.05 respectively according to Yahoo Finance.

A typical home improvement project with workers installing a residential solar energy system.

The sharp sell-off across the solar sector has created one of the market’s most compelling mispricings, and Nextracker stands out as a prime beneficiary. While many investors fled renewable energy names amid higher interest rates, policy uncertainty, and fears of overcapacity, Nextracker quietly outperformed on nearly every operational and financial front. Despite building a $4.5 billion backlog, widening margins, and closing the year with a fortress balance sheet, the market continues to treat Nextracker like a low-margin commodity hardware maker, overlooking its evolution into a tech-enabled cash engine. As the industry leader in solar tracker systems — which optimize panel angles to increase energy yield — Nextracker has developed a defensible moat through patented tracker architecture and machine learning optimization software, TrueCapture. This differentiation has kept it entrenched as the global leader, with 23% market share and nine consecutive years as the top shipper worldwide.

Even as macro headwinds battered solar stocks, fundamentals strengthened. Global installations hit a record 593 GW in 2024, up 29% year-over-year, led by utility-scale solar — where Nextracker thrives. In the U.S. alone, utility-scale deployments surged 33%, comprising over 80% of new builds, thanks to power purchase agreements as low as $25/MWh and demand from AI-driven data centers. This momentum is reinforced by long-term tailwinds from electrification trends and policy incentives like the Inflation Reduction Act, which locks in a 30% investment tax credit and bonuses for U.S.-made components. These drivers triple domestic module production and anchor utility solar’s central role in meeting future energy demand. While solar sentiment remains fragile, these durable trends set up a major valuation dislocation for top-tier players like Nextracker.

Operationally, the company excels through a hybrid business model that integrates software and hardware. It generates 10–12% of its revenue from higher-margin software and services, and its TrueCapture and NX Navigator tools optimize energy output in real-time using billions of data points. This creates a flywheel effect: more installed trackers lead to smarter algorithms, which drive better energy yields and stickier customer relationships. Nextracker’s hardware, meanwhile, is built through an asset-light approach that leverages manufacturing partnerships in the U.S., Mexico, and India. Capital expenditures run at just ~2% of revenue, far lower than peers like Array and Arctech, whose capex is 5–7%. This allows Nextracker to scale faster, remain more agile, and convert a larger portion of its revenue into profit.

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This efficiency is reflected in its financials. Nextracker ended FY2024 with ~$700 million in cash and only ~$145 million in debt, giving it a net cash position of over $550 million. Its free cash flow for the year was a staggering $427 million on just under $900 million of EBITDA — a ~90% conversion rate that rivals top-tier industrial and software companies. With negative net debt and an interest coverage ratio around 30x, Nextracker faces no pressure to raise equity or rely on expensive debt. It’s uniquely positioned in the solar space to self-fund growth, acquisitions, or R&D without diluting shareholders. If the solar cycle softens, Nextracker has the capital flexibility to play offense while peers are forced to retrench.

Margins underscore the story even further. In FY2024, the company posted a gross margin of 32.7% and an adjusted EBITDA margin near 21%, all while scaling revenue more than 20% annually. These results were driven by moderating input costs and the ramp-up of domestic tracker production, with high-margin software mix contributing incremental tailwinds. Compared to peers like Array, which only recently recovered from sub-10% EBITDA margins, or First Solar, which deals with capital-intensive swings in cash flow, Nextracker is the rare solar hardware name offering both growth and profitability.

Nextracker represents a rare blend of strengths: industry-leading technology, a dominant global market share, high-margin recurring software revenue, and a rock-solid balance sheet. Despite these advantages, the market continues to value the company as if it were a low-margin, cyclical hardware manufacturer. This mispricing creates an attractive opportunity for investors. As the solar sector matures and market participants begin to distinguish true quality from commodity players, Nextracker’s operational consistency, strong margins, and disciplined capital allocation are likely to command a significant re-rating. With a base case valuation of $62 per share based on 150 million diluted shares, the current price of $40 implies 48% upside — even before factoring in potential catalysts or a broader sentiment recovery.

Nextracker Inc. (NXT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held NXT at the end of the fourth quarter which was 32 in the previous quarter. While we acknowledge the risk and potential of NXT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NXT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.

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