After a long period of underperformance, UK stock Ceres Power Holdings (LSE: CWR) has suddenly started to surge. Year to date, it’s up 199%. Are we looking at another Rolls-Royce scenario here (it’s risen more than 1,500% since October 2022)? Let’s take a look.

What does Ceres Power do?

Ceres Power’s a solid oxide fuel cell technology company. Its ultimate goal is to help sustain a clean, green planet by ensuring there’s clean energy everywhere in the world.

It has a rather unique business model. Instead of building its own products, it licenses its technology to other industrial companies.

What’s driving the share price?

As for why the stock’s hot right now, there are a few reasons. One is that the company has recently done some big deals.

In November, for example, it announced a licensing deal with Chinese firm Weichai Power (its largest shareholder) to help power data centres. Under this deal, Ceres will manufacture solid oxide fuel cells and stacks for stationary power systems in China, targeting artificial intelligence (AI) data centres, commercial buildings, and industrial applications.

Another reason is that sell-side analysts have been getting more bullish. Last month, for example, Goldman Sachs raised its share price target from 530p to 670p (after adding the stock to its European Conviction List in November).

Enthusiasm for AI infrastructure stocks is also no doubt driving the share price higher. Right now, investors are working their way down the AI supply chain, trying to find the next big thing (without much regard for valuations).

Ceres Power vs Rolls-Royce

It’s worth noting that there’s one key difference between Ceres Power and Rolls-Royce: profitability. The main reason Rolls-Royce shares have surged in recent years is that its profits have exploded (this has attracted institutional investors).

Ceres has no profits however, and it’s not expected to be profitable in the next few years. This adds risk from an investment perspective, and means that the share price strength may not be sustainable (and that it may not deliver Rolls-Royce-like returns).

An investment opportunity for growth hunters?

Are the shares worth a look despite this issue? Well, they could be, as a highly speculative AI-related growth play.

But to my mind, they’re very risky. Not only are there no earnings but the company’s track record in terms of growth is quite patchy (last year revenue fell 37%).

On top of this, we have a valuation that’s very high. The price-to-sales ratio‘s about 20 on a forward-looking basis and near 40 on trailing basis (there’s no price-to-earnings (P/E) ratio as we don’t have any earnings).

It’s worth noting here that the average price target is about 447p. That’s roughly 30% below the current share price.

One other thing worth mentioning is that late last year, the company was the subject of a scathing report from short seller Grizzly Research. It wrote that Ceres has a “flawed business model” and that it expects the stock to “fade away into obscurity”.

Given these risks, I won’t be buying the stock for my own portfolio. In my view, there are much safer growth stocks out there for me today.