What happened

At first, Thursday looked like it was going to be another great day for hydrogen fuel cell stocks. But then came the downgrade.

In early trading, shares of hydrogen economy leaders Plug Power (NASDAQ:PLUG) and Bloom Energy (NYSE:BE) popped more than 7% each, while their smaller rival, FuelCell Energy (NASDAQ:FCEL), which focuses on stationary power stations utilizing fuel cells, was up 17.5%. Sadly for momentum investors, it was at this point that investment bank J.P. Morgan chose to pop the fuel cell stock bubble, downgrading FuelCell shares to neutral.

As of 12:10 p.m. EST, shares of FuelCell have given up almost all their gains, holding onto just a 3.7% rise, while Plug is up 3.2% and Bloom Energy is up 5.4%.

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

What exactly does J.P. Morgan have against fuel cell stocks? Basically, it's the valuation.

As the analyst points out, FuelCell shares had appreciated nearly 80% in price over the past three days, and are up 135% over the past month. (Bloom enjoyed a more muted recent rise, up only 2.5% since the close of trading last week. Plug was actually down a bit, which explains why J.P. Morgan trained its sights on FuelCell and left the other two stocks alone for the time being.)

Moreover, noted the analyst, the spike in share price at FuelCell "seems to be taking place in the absence of new news" -- an environment that encourages downgrades.

Now what

To an extent, I agree with that, but there is one point in J.P. Morgan's note on which I'd like to quibble. Although J.P. made a tactical downgrade today -- and a downgrade to only neutral, not sell -- the analyst argued that FuelCell's fundamentals are "good" (reports TheFly.com) and predicted the stock will earn a profit as early as 2022. I think this is a dangerous prediction to make.

The fact is most analysts who follow FuelCell stock, and who have done so for years, don't see any chance of the company earning a profit any time as far out as their estimates run (2023 to be precise, according to S&P Global Market Intelligence estimates). When you consider that it's been 23 years since FuelCell earned any profit whatsoever, a continuation of that trend seems more likely than FuelCell suddenly learning how to make money in 2022.

Sure, similar objections can be made about Plug Power and Bloom Energy as well (and I've made them). But even so, Plug at least has secured a vast war chest of cash to keep itself in business for the foreseeable future, while Bloom has proven itself at least occasionally capable of generating cash on its own. In my opinion, this makes either of those stocks a relatively safer bet than FuelCell.

And that's the one thing J.P. Morgan and I agree on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.