What happened
Hydrogen stocks crashed this week by double-digit percentages, with top stocks in the industry losing momentum swiftly as the week progressed -- until Friday morning, when they rebounded somewhat.
Here's how much the three top hydrogen stocks had fallen at their lowest points during the week, according to data provided by S&P Global Market Intelligence:
- Plug Power (PLUG -5.44%): down 9.9%.
- Bloom Energy (BE -2.44%): down 5.3%.
- Ballard Power Systems (BLDP -2.51%): down 12.7%.
Green hydrogen could play a deeper role in helping economies decarbonize, but the industry is still in a nascent stage, and the companies developing and deploying fuel cell hydrogen technology are still trying to establish their footholds. That largely explains why hydrogen stocks fell this week.
So what
Inflation as measured by the Consumer Price Index hit a 40-year high in May -- up 8.6% year over year. That number, released last week, sent a shock wave through the stock market and triggered a sell-off as investors dumped stocks in anticipation of the Federal Reserve taking a more aggressive stance on interest rate hikes.
That was precisely what occurred: The Federal Open Market Committee increased the benchmark federal funds rate by 0.75 percentage points on Wednesday -- its biggest single-step increase since 1994. Many economists now believe a recession in the U.S. is imminent, and that fear sent stock prices crashing further, with growth stocks in particular taking a beating.
Plug Power, Bloom Energy, and Ballard Power Systems are all growth stocks currently focused on expanding their customer bases and revenues. While all three build hydrogen fuel cell products and technologies, they serve diverse end markets.
Plug Power is well-known for its hydrogen fuel cell Gen Drives, which are designed to power materials-handling equipment like forklifts. Bloom Energy, on the other hand, builds solid-oxide fuel cell energy servers that can supply uninterrupted electrical power on-site for pretty much any kind of company. Ballard Power's fuel cell products have found use in numerous niches, among them heavy-duty transportation, marine, and stationary power.
These companies have major growth plans. Plug Power, for example, is exploring markets beyond forklifts and betting big on electrolyzers. It's building large green hydrogen plants in the U.S. and Europe, and last month, it bagged its largest electrolyzer order yet. By 2025, Plug Power expects to grow its revenue more than threefold to $3 billion.
Bloom Energy's top line crossed the $1 billion mark in 2021, and management believes it could generate $15 billion to $20 billion in annual revenue by 2031.
PLUG Revenue (TTM) data by YCharts
Ballard Power estimates its total addressable market will be worth more than $250 billion by 2030. Ballard Power's revenue growth rate has been the slowest among the three companies, which helps explain why its shares were hit the hardest in this week's decline.
Now what
Plug Power, Bloom Energy, and Ballard Power will all require funding to bring their growth plans to fruition, but higher interest rates will make taking on new debt a costlier proposition. With inflation already driving fuel, material, and labor costs higher, investors now fear these companies may not turn profitable anytime soon. And if they continue to burn cash, they may need to issue more stock to raise funds, diluting their current shareholders.
Just last week, Plug Power filed an automatic shelf registration statement. With that step taken, it now has the option at any point over the next three years to sell a variety of securities to raise funds, including common stock.
As long as the economy looks to be at risk of slipping into a recession, hydrogen stocks will continue to be volatile, and any rebound in their prices could just be a "dead cat bounce" until they can prove their growth stories are intact. Their next quarterly reports will give investors some insights about whether that's the case, but we'll all have to wait until August to see them.
