What happened
Hydrogen-related stocks had a rough day on Monday as downgrades and higher interest rates hit many energy-related stocks. As the cost of financing goes higher, it makes it harder to finance projects like utility-scale hydrogen assets or new hydrogen-powered trucks, so it's not surprising these stocks are down.
Shares of Plug Power (PLUG 0.34%) fell as much as 10.5%, Bloom Energy (BE 2.88%) fell 9.7%, and Nikola (NKLA +0.00%) dropped 10.2% in Monday's trading, according to data provided by S&P Global Market Intelligence. As of 3:15 p.m. ET, shares of the companies were down 10.5%, 8.7%, and 10.8%, respectively.
NASDAQ: PLUG
Key Data Points
So what
One catalyst today was an analyst at Truist downgrading their Plug Power price target from $9 to $8, but maintaining a hold rating. Investors shouldn't read too much into analyst ratings because moves driven by upgrades or downgrades often don't last long, but short term, they can drive a stock's movement, and that seems to be happening today.
Higher interest rates are also weighing on alternative energy stocks. Ten-year U.S. government bonds have risen 11 basis points today alone to 4.68%. The rate has increased a whopping 50 basis points in the last month, and it doesn't currently appear that any reprieve is on the horizon.
It may seem unrelated, but a drop in NextEra Energy (NEE 0.08%) and NextEra Energy Partners (NEP +0.39%) shares may be having an impact on the industry. NextEra is one of the early adopters of hydrogen technology and has worked with both Bloom Energy and Plug Power in the last three years to build and finance assets. But higher rates have caused the company to reduce dividend growth expectations, and that's putting pressure on the stock. If it results in less investment or investments that require a higher return, it'll be bad for hydrogen project demand.
Utilities are ultimately the partners companies like Plug Power and Bloom Energy sell to, so it's important that they have a solid financial footing and increasing demand. It doesn't appear that's the case for NextEra, and investors are worried that's only the first shoe to drop in utilities, causing reduced investment or forcing cost reductions on suppliers.
At Nikola, the challenge is even harder. The company is running out of money, and higher interest rates and worsening financials mean the company's uphill battle may be impossible. Down days for financially solid companies can mean devastating days for stocks like Nikola, and that's what we're seeing today.
Now what
There's a balance between the improvements being made in the hydrogen market long term and the fact that utility buyers are having to make hard decisions about where to spend money short term. The market is entering a period of higher rates and potentially an economic slowdown, and the impact for suppliers may be less volume and pressure on pricing.
None of these companies are making money, so they're all high risk, but it looks like the risks just got a lot higher today as stock prices fall (making raising money through stocks sales harder) and interest rates rise (making debt more expensive). There's no great way out unless these companies get to free cash flow positive quickly.
