Plug Power (PLUG -0.60%) has been one of the biggest winners during the pandemic. Even after a sharp sell-off from its peak early this year, shares of the hydrogen fuel cell maker are up nearly 1,000% since the beginning of 2020. As interest in electric vehicles (EVs) and alternative fuels have taken off, so, too, has Plug Power, along with several EV-makers and related stocks. That surge has led to some to claim that renewable energy stocks are in a bubble as valuations seem stretched across the board in the sector.

Plug Power, which created the first commercially viable hydrogen fuel cell market, relies on just a few major customers to support its business selling fuel cell systems for electric industrial vehicles like forklifts. Among those customers are massive retailers like Amazon (AMZN -0.32%), Walmart, and Home Depot.

As that dominant online retailer, Amazon appears to be Plug Power's biggest customer, and the surge in demand that it experienced last year helped fuel Plug Power's massive gains. On the first-quarter earnings call, CEO Andy Marsh said:

But if I look at it, there are, today, five customers who really are driving the material handling business. The biggest one is actually Amazon. There's lots of new deployments with Amazon. Amazon is not only buying fuel cells but electrolyzers from this.

A Plug Power hydrogen truck

Image source: Plug Power.

An intimate relationship

Back in 2017, Plug Power sold warrants to Amazon, giving it the right to buy up to 23% of the company through warrants. The deal was made in part to encourage Amazon to spend enough money with Plug Power, at least $600 million, in order for the warrants to vest. Plug Power also made a similar deal with Walmart, though most of Walmart's warrants don't appear to have vested yet.

Last year, those warrants vested and Amazon took control of 55 million shares at an exercise price of roughly $6. Amazon appears to have turned around and sold that stock, as it hasn't reported taking an equity stake in Plug Power as it would have to do according to reporting requirements. Plug Power CEO Andy Marsh told The Wall Street Journal, "It was an extraordinary payday for them."

It's unclear at what price it sold its shares. Amazon likely netted at least $1 billion in the deal, as Plug Power shares have been trading at around $25 for most of 2021. The tech giant reported an equity warrant valuation gain of $1.5 billion in its other income in 2020, much of which was likely from Plug Power. In Q1 2021, it reported a $305 million gain under the same line item.

For Plug Power, the deal also seems to have worked out, even though it resulted in the company reporting negative revenue last year, as the loss it took on the warrants were greater than its sales. Still, there was no cash impact from the warrants, and the skyrocketing stock price gives the company much more flexibility than it had in 2017 when it made the deals with Amazon and Walmart.

Why Amazon sold

Despite Plug Power's skyrocketing returns recently, in many ways the stock looks like a poster child for the renewable energy bubble. The company has consistently posted gross profit losses, even as sales have jumped, showing that its business model may be incapable of turning a profit. The company has a long history of diluting shareholders, and the CEO cashed out stock options to the tune of $28 million earlier this year. 

Plug Power is also not a new company. It was founded in 1997 and surged during the dot-com bubble on hopes of the disruptive potential for hydrogen fuel cells before collapsing when that bubble burst.

While the company is growing quickly and provides an important service for retail giants like Amazon and Walmart, it trades at a sky-high valuation with a price-to-sales ratio of 40 and no visible profits. 

Despite Amazon's own climate goals and its growing interest in Plug Power's products, it didn't seem interested in holding onto the stock. That, along with the company's own history, valuation, and lack of profits, looks like a warning sign for investors.