TSS, Inc. (TSSI): Riding the AI Infrastructure Boom—Or Too Dependent on One Client?

The rise of generative AI has created a gold rush in data center infrastructure, and TSS, Inc. (NASDAQ:TSSI) is at the center of it. Over the past two years, TSSI has seen revenue skyrocket—jumping 172% in 2024 to $148 million—driven by its role as a key partner for a U.S.-based IT Original Equipment Manufacturer (OEM) in building AI-enabled server racks. But this meteoric growth comes with a glaring risk: TSSI derives 99% of its revenue from this single customer. Is this a recipe for outsized returns, or a trap? Let's dissect the opportunity and the risks.

The Growth Story: AI's Appetite for Hardware

TSSI's ascent is tied to the insatiable demand for AI infrastructure. Its largest client—a U.S. OEM (likely Dell Technologies)—is at the vanguard of building server racks for generative AI systems. These racks, which require high power density and advanced cooling, are critical to training large language models and other AI applications. TSSI's services, including procurement, systems integration, and facility management, are integral to this process.

In 2023, TSSI's revenue surged 78% to $54.4 million, with procurement services alone jumping 192% to $38.5 million. By 2024, revenue hit $148.1 million, fueled by a multi-year agreement to scale AI rack integration. The company's new 212,793-square-foot facility in Georgetown, Texas—equipped with 15 MW of power capacity—has enabled it to process orders faster and at higher volumes, reducing cycle times and boosting margins.

The Risk: Overexposure to One Client

While TSSI's growth is undeniable, its reliance on a single customer is alarming. In 2023, 96% of revenue came from this OEM; by 2024, that figure rose to 99%. The SEC filings explicitly flag this as a material risk: losing this client could “have a material adverse effect on our results.”

Critics argue this concentration leaves TSSI vulnerable to supply chain disruptions, shifts in the OEM's priorities, or a slowdown in AI spending. For instance, if the AI hype cycle peaks and capital spending cools, TSSI's revenue could crater. Similarly, if the OEM finds alternative suppliers or faces its own financial woes, TSSI's stock—a microcap with a $120 million market cap—could be obliterated.

Robofunds' Lens: Risk-Adjusted Returns and Diversification

To evaluate TSSI through an AI-driven investment framework, consider Robofunds' principles, which emphasize balancing growth potential with risk mitigation. Here's how TSSI stacks up:

1. Growth Potential: TSSI's core business aligns with secular trends in AI infrastructure. As companies like OpenAI, Meta, and Amazon expand their AI models, demand for high-performance server racks is likely to stay robust. TSSI's ability to scale with its new facility and operational efficiencies (e.g., a 345% net income jump in Q2 2024) suggests it can capitalize on this.

2. Concentration Risk: The 99% revenue dependency violates diversification tenets. Robofunds' models typically penalize such exposures, as a single point of failure could wipe out gains. Metrics like the customer concentration ratio (CCR)—which here is off the charts—would drag down risk-adjusted returns.

3. Margin of Safety: TSSI's valuation is elevated, with a trailing P/E of ~40x, compared to 25x for the broader tech sector. This premium assumes no hiccups with its OEM client. If the relationship falters, the stock could face a severe correction.

Can TSSI Mitigate the Risk?

The company is attempting to address dependency concerns:
- Diversification Efforts: TSSI has hinted at expanding into adjacent markets like modular data centers and cybersecurity infrastructure. However, these initiatives remain nascent and unproven.
- Operational Scale: The Georgetown facility, now operational, aims to reduce costs and increase throughput, potentially improving margins even if revenue growth slows.

CEO Darryll Dewan has emphasized that the OEM's AI roadmap is “multi-year,” suggesting stability. Yet, as of June 2025, TSSI has not disclosed any major new clients, leaving its fate still tethered to one partner.

Investment Considerations

For investors, TSSI is a high-risk, high-reward bet. Here's the calculus:

• Bull Case: AI infrastructure spending remains red-hot, and the OEM's projects expand. TSSI's margins improve further, and its stock could double from current levels.

• Bear Case: A slowdown in AI investment or a contractual dispute with the OEM triggers a collapse. The stock's microcap status amplifies volatility.

Robofunds' Take: While TSSI's growth is compelling, its single-customer exposure violates diversification norms. A 5–10% allocation in a high-risk sleeve of a portfolio could make sense for aggressive investors, but only if paired with other AI infrastructure plays (e.g., NVIDIA, Applied Materials) to spread risk.

Final Verdict: Proceed with Caution

TSSI is a pure-play on the AI infrastructure boom, and its execution to date has been impressive. However, the lack of diversification means this is not a “set it and forget it” investment. Investors should:
1. Monitor TSSI's progress in securing new clients.
2. Track the OEM's AI spending and any regulatory risks (e.g., data center permitting issues).
3. Watch for margin trends—sustained gross profit expansion would be a positive sign.

For now, TSSI is a speculative call. The upside is massive, but the risks are existential. Proceed only if you can stomach a potential 50% drawdown.

Disclosure: This analysis is for informational purposes only. Always conduct your own research before making investment decisions.