Just like solar names, hydrogen stocks have not been spared by the funding concerns that emerged in the wake of the banking crisis a couple of months ago, as most hydrogen projects require tens or even hundreds of million dollars financing.
But recent newsflow has been reassuring, with Plug Power reaffirming in recent days its revenue target of $1.4 billion for 2023, representing close to 100% year-on-year growth, without hinting at its low case guidance of $1.2 billion. In addition to this financial update, Plug Power’s investor day bolstered confidence in the company’s short-and long-term outlook.
In the near term, the company, which has been ramping output at its Rochester gigafactory to 100 MW/month, estimates it can almost double production thanks to process improvements and introduced a new product called HL 1500, which is the market’s first portable hydrogen refueler capable of resupplying commercial vehicles with hydrogen as quickly as diesel or other fossil fuels and which can be flexibly redeployed to multiple locations. The HL 1500 could then solve one of the hydrogen’s industry main challenges, which is the lack of a permanent refueling infrastructure, and then provide upside to near term revenue expectations.
Longer term, Plug Power announced its ambitions to produce over 2,000 tons of hydrogen daily, deploy 1 GW of stationary power products, ship 5 GW of electrolyzers annually, deliver 500,000 fuel cell-powered forklift trucks, and collaborate with Renault to have 100,000 HyVia (Hydrogen Vehicle Integration Architecture) vans on the road. To deliver on these expectations, the company provided valuable insights into its manufacturing facilities, including the Rochester gigafactory and Vista manufacturing facility, showcasing their ability to deliver hydrogen solutions at scale.
In the same vein, Bloom Energy also reaffirmed its guidance at its recent investor day, with a target of 30-35% revenue CAGR towards $4-$5 billion in 2026 and a 15% operating margin by 2025 (compared to an estimated EBIT breakeven in 2023), reflecting its confidence in a $2 trillion TAM for its hydrogen products.
Overall, it looks like the hydrogen industry is not suffering from any specific impact from the spring banking crisis such as project delays or cancellations. To the contrary, hydrogen adoption keeps ramping up fast, with traction notably visible in the stationary power segment and in Europe.
In stationary power, recent order momentum has been strong with Plug Power landing an 8 MW contract to provide hydrogen fuel cell power to Energy Vault, ensuring the delivery of clean energy to Calistoga, California during critical situations like emergencies and wildfires. If successful, the project would validate Plug’s PEM (Proton Exchange Membrane) technology as a back-up solution for utilities and open up a massive market to the company.
Meanwhile, Bloom Energy signed an agreement with oil and gas producer Perenco to install 2.5 MW of solid oxide fuel cells on an onshore oil field in England, marking the company’s entry into the UK market and paving the way for its expansion in Europe.
Opportunities actually abound in the power stationary market: on top of utilities and energy/industrial businesses, the data center segment represents a massive end-market as it faces a material rise in energy consumption with the advent of AI and as it seeks to ditch its back-up generators running on diesel for clean hydrogen-based solutions. Last year, Microsoft and Plug successfully completed a test of a three-megawatt hydrogen fuel cell system capable of powering around 10,000 computer servers and the Tech giant is now expected to move to a larger roll out.
Europe is another powerful growth driver, as illustrated by Bloom’s deal with Perenco and by Plug’s flurry of electrolyzer supply deals and production projects in the region in recent weeks, confirming that the old continent is rapidly shifting to hydrogen.
Plug landed three deals in Europe for its electrolyzers with Ardagh Glass Limmared AB, Hydro Havrand and the APEX Group, for the use of green hydrogen in glass manufacturing, aluminum recycling and steel manufacturing processes. It also announced plans to develop three green hydrogen production facilities in Finland expected to produce 850 tons per day, that would make it one of the leaders in green hydrogen production in Europe by the end of this decade.
In conclusion, hydrogen adoption and growth momentum seem well on track in spite of macro headwinds and a tougher funding environment. As Plug Power and Bloom Energy scale their operations, profitability, which is on all investors’ minds in the current environment, should rapidly improve with operating margins now expected to be in the mid teens by 2025. This would put PE multiples at reasonable levels in 2025 (in a 15x – 20x range) and cheap levels in subsequent years (below 10x).
Obviously, this does not come without risks (project execution, continued cost inflation…). But even taking more cautious assumptions (say an operating margin around 10% for Bloom in 2025 and 12% in 2026), the stock would trade at slightly more than 20x earnings in 2025 and 13x 2026, not unreasonable multiples in light of its strong growth profile.