Energy is vital for modern society. It's also so omnipresent that many people take it for granted -- at least until there's a blackout. Then it becomes clear that without reliable energy, we might as well be living in the Dark Ages. But the energy industry is evolving in important ways right now, including a shift from dirtier fuels to cleaner ones. Plug Power (PLUG -1.51%) is right in the middle of that transition.
This has some investors considering the stock as a long-term investment idea. But I'm not quite there yet. Here's why I'm not ready to buy it, despite the business's very interesting story.
Image source: Getty Images.
What does Plug Power do?
From a top-level view, Plug Power helps supply the world with power. Digging down into the business, however, you find that it is focused on producing hydrogen by using advanced electrolyzers powered by renewable energy sources like wind and solar to split water molecules into hydrogen and oxygen through a process called electrolysis. It then uses that hydrogen through a different process to generate electricity. Using hydrogen as a fuel source produces clean energy because the main byproduct of that production is water.
Water is a much better waste product than greenhouse gases, noting that we all need water to sustain our lives. Carbon fuels, which provide much of the world's power today, are much more problematic from a clean energy perspective. But hydrogen isn't the only way to generate clean energy, with renewable power options like solar and wind available and far more prevalent at the moment.
Plug Power's business has potential, but it doesn't quite have me sold. There are at least three things that need to happen to get me to seriously consider the stock:
1. Plug Power has to cut its cost of production
When it comes to production costs, hydrogen isn't as economically efficient as other power options ... yet. Yes, it is clean, but when put up against, say, oil (refined into gasoline) for transportation, a key end market for hydrogen, it is still cheaper to go with the carbon fuel. So, from a big picture perspective, the hydrogen market needs to reduce costs so it can better compete against other energy-generating technologies. Plug Power is doing its part on this front, noting that the company's Georgia hydrogen plant recently set a U.S. production record using its GenEco systems. That's good, but it isn't the entire story.
Hydrogen has some use cases where it excels, such as powering lifts in a warehouse. Not filling the air with the toxic fumes from burning carbon fuels is a big benefit in tight inside spaces. And there are some companies that simply prefer to be leaders in clean energy use, and they may want to use hydrogen even if it is more costly than other power options. But Plug Power itself also has to focus on cutting costs, noting that it has been working on what it calls Project Quantum Leap. Simply put, it is working to keep its own costs in check to improve profitability (more on this in a second).
The company is achieving success, but in the second quarter of 2025, its gross margin was negative 31%. That's better than the negative 92% in the second quarter of 2024, but there's still a lot of work to be done here. The current hope is that Plug Power can achieve a breakeven gross margin in the fourth quarter of 2025. That would be a big step in the right direction.
2. Plug Power has to expand its reach
The infrastructure to support hydrogen is still in its early stages of development and deployment. This is a big-picture issue and one that is specific to Plug Power. Energy is so vital to the world that there is a massive installed infrastructure around the sector. The fact that there are multiple gas stations in almost every town is the everyday sign of this. But behind those gas stations is a huge energy industry, from drilling for oil and natural gas to transporting it and processing it. There's a similarly large infrastructure around electricity production, including some of the dirtiest fuel sources like coal. Hydrogen just doesn't have the same ecosystem, and it will need it if it wants to compete.
Specific to Plug Power's, the story is roughly similar. It is still building out its technology, infrastructure, and customer base. It needs more scale, and it will take time and money to develop it. The company has customers lined up, with multiple large-scale projects moving toward final investment decisions in 2026. That's a great sign, but with revenue of just $174 million in the second quarter, it is still a very small business. For reference, ExxonMobil's income statement showed revenue of more than $7 billion in the second quarter of 2025.
Perhaps that's not a fair comparison, but it highlights the scale difference here and the competition that Plug Power is up against.
3. Plug Power has to turn a profit
The final thing that Plug Power has to do before I'd be willing to buy it is likely a long way off. As noted above, the company's near-term goal is a breakeven gross margin. That's a far cry from being a profitable company, as it just means that the company generated enough revenue to cover its cost of revenue. There are other costs below the gross profit line that are equally important to think about.
For example, research and development spending is still vital for Plug Power. Then there are sales, general, and administrative expenses, which are what it costs to operate the business on a corporate level. Neither of these is an optional cost, and together they were around $100 million in the second quarter. Even if Plug Power manages to achieve a neutral gross profit, it still has a roughly $100 million hole to dig out of before it would be close to earning a bottom-line profit.
Plug Power is a high-risk investment
All in all, Plug Power has an interesting technology and story. But it is a long way from being a sustainably profitable business. Until the cost of hydrogen power is more competitive and Plug Power's own costs are lower, it won't be there. And just as important as costs is the need to expand the use of hydrogen more broadly and Plug Power's products and services specifically.
Basically, there's a lot of work yet to be done in the hydrogen power niche and with regard to Plug Power's business. The company is making important progress, but that progress is not enough, in my opinion, to justify an investment for conservative investors like me.
