Jim Cramer: Power Solutions’ 50% drop is a ‘terrific entry point’ for data center play

Jim Cramer has a simple take on Power Solutions International (NASDAQ:PSIX): the stock has been “nearly cut in half in less than a month,” and he sees it as “a terrific entry point because there’s nothing wrong with the data center thesis.” The price data backs up the severity of the drop. PSIX traded as high as $121.78 on a 52-week basis and has since fallen to $55.74, with a 35.79% decline over just the past month alone.

So what actually happened?

The company reported Q4 2025 revenue of $191.2 million, beating consensus estimates by nearly 20%. Full-year 2025 results were genuinely impressive: annual revenue of $722.4 million, up 51.78% year-over-year, with net income climbing 64.53% to $113.99 million. Cramer described the EPS as a “tremendous three year increase.”

But Q4 gross margins told a different story. Gross margin compressed to 21.9% from 29.9% the prior year as the company ramped manufacturing capacity to meet what Cramer called “off the charts demand” for data center backup power products. That margin hit, combined with a going concern warning from auditor BDO and a securities investigation announcement, sent the stock into freefall.

The going concern flag is the most alarming headline, but context matters. Management responded by expanding its revolving credit facility to $135 million and acquiring MTL Manufacturing & Equipment for $11.1 million to vertically integrate steel fabrication for data center power enclosures. CEO Dino Xykis was direct about the margin issue:

“Management has identified the key drivers and is executing specific actions to improve supply chain performance and manufacturing cost structures. We are beginning to see measurable improvements, which we expect to build and support margin expansion over time.”

That’s the crux of Cramer’s argument. The margin compression wasn’t a demand problem. It was a scaling problem, the kind companies hit when they’re growing faster than their manufacturing infrastructure can absorb. The MTL acquisition directly addresses that by bringing UL-certified steel fabrication in-house, shortening lead times and tightening cost control.

The institutional money seems to agree. Mercuria Capital purchased 46,490 shares worth $4.57 million on March 10, and Hel Ved Capital acquired 68,720 shares worth approximately $6.75 million on March 7, both buying into the selloff. The analyst consensus remains at “Moderate Buy” with an average price target of $108.84. The trailing P/E sits at roughly 10x.

The risks are real: negative Q4 free cash flow, no specific 2026 guidance, tariff exposure, and a tax rate that benefited from a one-time valuation allowance release that won’t repeat. Whether the margin issues prove temporary or structural will likely determine how the stock performs from current levels.