FTSE 250 stock Ceres Power Holdings (LSE: CWR) is on fire at the moment. Year to date, it’s up about 268%, making it the best performer in the FTSE 350 index.

So, what’s driving this explosive rally? And should investors consider adding this stock to their portfolios?

It’s all about AI

The rally here is down to enthusiasm for AI stocks. More specifically, enthusiasm for companies that can provide power for AI (this is a major bottleneck in the supply chain).

As its name suggests, Ceres Power is, unsurprisingly, a power company. It specialises in solid oxide fuel cell technology (this turns hydrogen directly into electricity), licensing its tech to other industrial companies.

So right now, it’s seeing a lot of interest. The fact that the share price has risen 268% in 2026 suggests that investors see this company as a major beneficiary of the AI boom.

Note that after this rise, it now has a market cap of around £1.6bn. That is quite a high valuation given its sales (more on this later).

The bull case

Now, there are definitely some reasons to be bullish here. One is that Ceres has won some major deals recently.

Late last year, the company announced a licensing deal with Chinese firm Weichai Power (its largest shareholder). This will see it manufacture solid oxide fuel cells and stacks to power data centres in China.

More recently, in April, Ceres announced a deal with Centrica and Delta Electronics. This is to serve data centres and energy intensive industries in the UK and Europe.

One other thing to like is that brokers are becoming far more positive on the name. Recently, a number of firms have given the stock a Buy rating.

The bear case

On the other hand, the company’s valuation is extremely high right now. With analysts expecting sales of only £59.3m this year, we have a price-to-sales ratio of nearly 50 and that adds a lot of risk to the investment case.

Another risk is the fact that there are no profits. This company has a track record of generating large losses and analysts don’t expect it to be profitable this year or next.

The stock has also attracted some attention from short sellers in the recent past. Late last year, Grizzly Research posted a scathing report on the company (this is probably worth reading if someone is thinking about investing in Ceres).

Finally, there’s the parabolic move higher in the share price. In my experience, when shares rise quickly like this, they often experience a sharp fall at some point.

Will I buy?

Putting this all together, it’s a tricky stock. While there appears to be a lot of growth potential, much of this looks to be already priced in.

Personally, I won’t be investing in the company. I think there are better ways for me to play the AI power theme.

Like some of these names…

Should you invest £5,000 in Ceres Power Plc right now?

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Edward Sheldon does not hold any positions in the companies mentioned