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InsightSUBSTACKDecember 10, 202512 min read
CLOSED: Capstone Green Energy (OTC: CGEH)
By everyonehatespoetry
Primary Source Material
Published via everyonehatespoetry
It’s likely I’ll be more active in the future and will try to be faster at releasing quick ideas instead of just long form pitches so make sure to subscribe
Sell update
Closing the trade on
$CGEH
here at $11.5.
First pitched it on X at around $2.5 and then full pitch came when stock was at $4.4 so up 160-360% depending on when you read it first.
Giving myself room to re-engage at another time.
I think I have a follower base of fairly smart investors who'll understand that binary outcome type stocks "will they win a DC?" can be great, but it's even better to make money before finding out the answer.
From conversations I've had with and around the company, I don't get the sense that a DC win is imminent, I might be wrong, but I'd be worried of a Tecogen type situation where hype gets ahead of fundamentals. Entering new end markets takes time and a lot of iteration, I got a lot of confidence in Capstone's management team but the stock is starting to price A LOT of execution.
When fast money comes in they come out fast as well. I am seeing a lot of retail hype, pitches with capital structures that are plain wrong (most don't even calculate the pref dilution or the PIPE), and various forms of mis-characterization. A big one I am seeing is all the mentions of hyperscale DCs when management has explicitly said they're more focused on tier 2/3 data centers.
Can it go higher? 100%, and likely will, it's got momentum behind it, but I have to remain honest with myself. This was my largest position at $3.4, and I've seen how the market treats companies when things don't work out instantly.
Well done to those who joined me and good luck to the ones who keep holding. And also big props to the management team for an outstanding job post chapter 11.
Pitch
I first talked about this stock and bought it on the day of the equity deal, the stock had drew down 40% to $1.85, and that morning they announced a deal at $2, I bought a mid sized position at $2.15, and then upon doing more work and meeting with the company and doing checks doubled my size to #1 position at $3.40 and haven’t sold a share since.
I think Capstone has a very good shot at being a multi-bagger with limited downside as a profitable growing business. It’s probably the most exciting stock I’ve bought this year and has remnants of my investment in TSSI (albeit safer).
Also only fair to highlight that Pernas Research first wrote about it, I think I had enough incremental value to justify a write up given a lot has change since his report.
Company overview
Capstone Green Energy has been manufacturing micro-turbine systems since 1988 in California. NASA and Ford were early investors, followed by Paul Allen and Bill Gates.
What is the core product? Low emission microturbine systems used to generate power, like jet engines which produce electricity and heat. It can run on natural gas, propane, renewable fuels… The killer “feature” has always been their use of air bearings which require no oil or coolant and mean there’s only one moving part so much lower maintenance cost and higher reliability.
It’s always been a company with a great product but a terrible business. All checks I’ve done show the product has never been the issue, everyone speaks very highly of it. The issue has been relentless pursuit of growth at any cost, 0 operational excellence (they would outsource everything and not bid suppliers against each other), poorly set-up dealer incentives (they’d all wait until the end of the Q to get discounts) and way too much capacity for their needs. It was public (NASDAQ: CGRN) and eventually went into chapter 11 in September 2023.
It emerged as (OTC: CGEH) in January 2025 with a new structure, two tranches of debt owed to Goldman (one due December 2025, one due December 2026), and a preferred that is essentially a 37.5% economic interest in Capstone owned by Goldman that doesn’t pay any sort of interest but will have to be redeemed in 2030. They’re owed the greater of $10.5M or 37.5% of Capstone.
As management executed a formidable turnaround and the first eyes were laid on the story, the stock steadily went up until November when Goldman ended up requiring payment on the December 2025 tranche (they had informally told management they’d extend the debt), this added a going concern risk in the filings and led to a sell-off of nearly 40% to $1.85, until a PIPE was announced for $15M, with significant participation from insiders in the deal, more than enough to clear the debt.
The thesis
I think the clearest way to distill the thesis is into two pieces: (1) great turnaround story with a strong core business and (2) massive realistic opportunity in data centers.
1 – Great turnaround story with a strong growing core business
When I talk about the “core” business I mean the current business, aka everything but data centers (which currently is near 0 revenue).
Chapter 11 emergence investments are usually quite attractive; they allow for a cleanup of the capital structure and give you room to do a lot of necessary actions that weren’t taken before. This is a classic case of taking a poorly run company with a great product and changing its way of growth at any cost to a best-in-class industrial operating system.
This entire turnaround is led by the new CEO Vince Canino, former executive at Trane and CEO of Smardt (large private chiller manufacturer), who brings in your typical best in class lean manufacturing, 80/20 sort of background. He’s been hard at work raising prices where needed, restructuring distributor incentives, cutting bloat, doing Design For Manufacture and Assembly “DFMA” (where he analyzes the cost to manufacture a part themselves to get a lower price from supplier), and many other things.
It’s working tremendously well, a business that never made money starts steadily earning mid-teens EBITDA margins (18% in the last Q). I believe that’s sustainable. One of my fears was the fast pace of new equipment sales which are structurally lower margins than rental and parts & service, however a lot of the new sales are larger systems going direct (thus higher margin), and the lean improvements will allow them to remain in the mid to high teens EBITDA margin range.
Now on growth, I believe Capstone can keep growing in the low 20s topline in their current end markets of commercial & industrial. What is that driven by? With the deterioration of the electric grid now worsened by the power draw of some data centers, and the rising cost of power, more C&I customers want backup power generation and access to behind the meter power.
To amplify this trend, all this demand coupled with the massive power bottleneck created by data centers has taken power supply away from the traditional C&I market, creating avoid that Capstone can fill.
I believe Capstone is a good investment on this alone, you’re paying 10x NTM EBITDA for a business growing 20% per year led by a very solid CEO, and with minimal leverage and secular tailwinds.
The easiest way to think about what the core business can generate as a baseline conservative estimate, is to take the chapter 11 emergence forecasts the company made in September 2023 (which didn’t include any data center business and likely omits the void the data center market created in the C&I market).
They’re tracking very well relative to those numbers.
2 – Massive realistic opportunity in data centers
This is where the story gets extremely good. It could be summarized simply as: “everyone wants power, there isn’t enough capacity, Capstone has plenty of capacity”.
You’re probably familiar with the trend but I’ll jog your memory, AI is very power intensive, there’s a shortage of power generation, the nuclear power plants that could be re-started have been, natural gas turbines are the next logical choice for newbuilds, but now the main OEMs like GE Vernova have massive lead times into 2029-2032. This pushed data center players to adapt and get power where they could, generator guys like Cummins, CAT and PSIX, or even more up and coming technologies, the best example of this being Bloom Energy. Their technology is less proven, much smaller KW generated per unit, but was good
enough, this led to a massive rise in orders and then stock price:
Well, here’s the thing, not only does Capstone make a turbine that generates power, but they have a bunch of capacity unlike everyone else. CGEH has the potential for as much as 1GW of total production capacity, a fact that I believe is vastly unknown to the market and has only recently started to get priced in with the Craig Hallum initiating coverage report.
To put in context how incredible 1GW is, LTM shipments sit at 35MW, if they filled up this hypothetical capacity it’d be a 28x increase in MW shipped. I am not saying that’s what will happen (companies usually don’t run 100% utilized) but it gives you an idea of the scale.
From the Q2 26 call:
Ok so everyone wants power, no one has capacity, Capstone has a bunch of capacity, if they fill it the stock is a multi-bagger. What gives you confidence data center orders will be real?
Couple of things: product is ideally suited, recent disclosures/reports, my own checks, and the CEO has done it before.
1 - First, the Capstone product is almost a perfect fit for data centers and has been tweaked to fit the next generation of DCs. Capstone doesn’t just generate power with a turbine, they handle the AC to DC conversion acting like a solid state transformer, they have a built in absorption chiller (think Tecogen) that captures the exhaust heat from the turbine and reduces the HVAC spend of the data center, and they have a routing system that can link to a battery system so that excess energy is stored. This exactly matches the new 800V standard pushed by NVIDIA for its next gen Rubin Ultra chip:
2 - Second, they’ve been a lot more vocal on data centers recently:
Q2 26 quotes:
“With the launch of our strategies in AI infrastructure and data center environments, we are poised for a step change in growth”
“We are collaborating with several of these companies to co-develop an on-site power-to-chip strategy, a solution designed to meet the evolving demands of AI factories and next-generation data centers. We are truly navigating uncharted waters and the tailwinds are accelerating. Capstone is steadying the ship and preparing for some very exciting sailing ahead.”
“We are in the middle of doing our lean manufacturing, refloor -- relayout of our factory floor. By the time we’re done, we should be able to do about 1 gigawatt of power annually. So that’s really exciting for us. Now the really cool thing about that is it requires very little CapEx. So as we look at how do we meet this upcoming demand, especially in the data center space, we’re uniquely ready to take on that challenge”
But also, came out with a new investor deck on December 2
nd
, that not only lays out much more details about data centers, but they have a slide where they quantify what a 100+ MW win with a data center might look like financially:
To put that out publicly you probably need to be in advanced discussions if you’re going to go as far as quantifying potential revenue.
And then Craig Hallum re-initiated on the stock after covering it for 20 years, talking at length about data centers which comes on the back of him having met the entirety of the new team and done checks with distributors and employees who told him big things were in the works.
3 - Third, based on my checks, the pipeline is very diverse, with many opportunities for 100MW blocks and some in the 10-50MW range, and overall sounded very real and could be a 2026 story for orders.
4 - And fourth and more of a fun fact, Vince, the CEO, used to run a company called Smardt that manufactures chillers, and when he was there they had a large successful entry into the data center market, so in a way he’s done it before.
Now how big could this be financially? Well, the formula is simple it’s MW shipped * price per MW * margin:
MW shipped: they have capacity for up to 1GW and are in talks for multiple blocks of 100MW in an end-market that’s short power
Price per MW is significantly higher than today, if you look at the new slide, $3.5M/MW for the upfront equipment + $0.35M/MW of high margin recurring service revenue, that compares to LTM of $1.5M/MW
The underlying driver is that on data centers, they don’t sell just the turbine, it’s a full system that’s much more complex
Margin wise, data center is margin accretive primarily because most of the opportunities are direct unlike most of their revenue today that’s through distribution, this means a 15-20pts lift on gross margins
So, a single 100MW win could be $350M of revenue (+$35M recurring) at higher margins than today (LTM revenue is $104M) and they have 1GW of potential capacity!
Back of the envelope math for you to play with:
So even at only 300MW of shipments, we could be looking at a 10 bagger. If you’re even more bullish data centers and power, put 700MW and see what happens!
Catalysts
Uplisting: they’ve made it clear they want to upgrade from the OTC onto NASDAQ/NYSE, but even making it out of the pink sheets would greatly improve people’s ability to buy the stock
Refinancing of December 2026 debt
Data center wins in 2026 and beyond
Continued resumption of coverage by sell-side, Craig Hallum the first one and overall discovery process
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I own shares in Capstone Green Energy. I may buy or sell at any moment without disclosing it. This is not financial advice this is for entertainment purposes only.
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