Renewable energy has disrupted oil, gas, coal, and nuclear electric-power generation over the last decade with sources like wind and solar often beating fossil fuels on a cost basis in competitive bids. But there's a gap in the renewable market that energy storage and clean fuel will eventually need to close. And it could be a multi-trillion dollar market for the companies that can figure out clean storage. 

I think hydrogen will be the energy-storage medium the renewable energy industry needs and could provide it with a much-needed clean fuel. And Bloom Energy (BE -5.62%) is the stock I think will be one of the hydrogen winners, making it my top renewable energy stock of the month

Bloom Energy fuel cells at a commercial building.

Image source: Getty Images.

Hydrogen hype

Hydrogen has been a hot and cold investment for years, and that variability has continued in the past year. Bloom Energy's stock is up 201% over the past year but is down 44.2% from its 52-week high

The hype machine is real in hydrogen, and that's because the electric-power market is worth more than $2 trillion. Even a small chunk of that for hydrogen is a huge opportunity.  But building a sustainable business is critical in hydrogen. What investors should be most impressed with is how quickly Bloom Energy's business is improving fundamentally. 

Better by the year

Disruptive technologies in energy succeed by reducing costs in order to expand their market and open more use cases. Since 2015, Bloom Energy's fuel-cell cost per kilowatt has fallen from $5,886 to $2,420, a 59% reduction in five years.

At the same time as costs have dropped, kilowatts of fuel cells sold have increased enough to drive a steady increase in revenue and a steady increase in margins. The company is still losing money, but if the same trajectory continues, it could be profitable in the next few years. 

BE Revenue (TTM) Chart

BE Revenue (TTM) data by YCharts

This year, management expects revenue of $950 million to $1 billion and gross margin of around 25% with near positive cash flow from operations. Not only is Bloom Energy's technology improving each year, so are its finances. 

The next phase

Bloom Energy has always been a fuel cell company, but it hasn't been a hydrogen company, per se. It has also been a flexible fuel company, using hydrogen, biogas, and natural gas to generate power, but the company's long-term plan is to transition entirely to hydrogen fuel cells and add electrolysis, which creates hydrogen from water and electricity. 

The company's solid-state fuel cells can effectively be run in reverse and turn electricity (from renewables) and water into hydrogen. So, Bloom Energy fuel cells can both make hydrogen and turn hydrogen into electricity on demand. If these products prove to be economical, it will open up energy storage, martime power markets, and more. Management says the electric-generation market is worth $2.4 trillion per year, and hydrogen could change how we think about the entire electricity market. 

Why Bloom Energy is the best buy in renewables

Energy markets are all about following long-term trends. The cost of renewable energy is falling, energy storage needs are rising, and the cost of fuel cells is dropping rapidly. That should open up large markets for Bloom Energy, especially when electrolysis is brought into the mix. 

Given the potential addressable markets in energy storage, maritime power, and backup power, Bloom Energy stock still has a lot of upside with a market cap of just $4.2 billion. This isn't a low-risk stock by any means, but a disruptive energy company with huge upside is worth the risk, especially given the improving fundamentals Bloom has demonstrated the last few years.