Source: Plug Power.

In frothy times, markets can sometimes behave very irrationally. 

In this type of speculation-gone-crazy market, where having the right buzzwords in the business plan and a rising stock price matters a lot more than having solid fundamentals, anything can happen. And the last scenario is what likely happened to Plug Power, Inc.

In Plug Power's case, the Japanese government recently declared it will likely grant a minimum $20,000 subsidy to fuel cell vehicle buyers. The tentative subsidy is intended to make fuel cell vehicles more affordable for Japanese taxi companies, and is also intended to help Japanese car companies accelerate their fuel cell vehicle programs. Even though Plug Power isn't Japanese, news of the tentative subsidy was enough to send Plug Power stock off to the races, as shares of the company rallied significantly afterwards. 

Why the rally is irrational
The market's reaction to the news is very irrational because the Japanese subsidy does not pertain to Plug Power. According to Reuters, the fuel cell subsidy is only applicable to vehicles made by Toyota Motor Corp and Honda Motor Co., LTD. 

Furthermore, in its current state, Plug Power does not have the resources to compete against the likes of Toyota or Honda in the very capital-intensive world of fuel cell vehicles. This is because Plug Power was nearly dead eight months ago because it couldn't find enough customers to buy its products. Because it had been on the ropes, Plug Power simply doesn't have the technology, experience, brand, or capital necessary to compete against Toyota or Honda, who both have annual research and development budgets that dwarf Plug Power's entire market capitalization.  

And even if it did have the necessary resources, Plug Power shouldn't compete in the fuel cell vehicle market, because its best opportunity is to currently capture the fuel cell opportunity in the forklift industry. Given that the material handling market is around $4 billion in the U.S. and possibly as large as $20 billion worldwide, Plug Power should have plenty of room to grow in its own sector. It shouldn't try to do something else without dominating its niche first.

The bottom line
If Plug Power can execute, deliver significantly more contract wins, and contain costs, it does have a future. But there is no chance it can compete with the likes of Toyota or Honda in fuel cell vehicles anytime soon. Unless the jump is due to some other factor, Plug Power's recent rally is irrational.