Bloom Energy (NYSE:BE) has seen its shares surge by more than 60% over the last year, solidly outperforming the market despite the gravity of recent trade-induced turmoil.
The company, which manufactures onsite fuel cells for combustion-free power generation, is getting a massive boost from rising demand for power in the AI market.
How high will Bloom Energy stock go, and is this innovative power company a pick-and-shovel investment to make as AI infrastructure ramps up?
AI Opportunity in Front of Bloom Energy
Right now, much of Bloom Energy’s investment thesis rests on the opportunity that has opened up for it in powering AI data centers.
With its on-site hydrogen cells, Bloom Energy can provide quick, modular power to data centers faster than utility companies can connect them to existing networks. As such, the company’s power cells have the potential to become interim power solutions for the rapidly growing number of data centers powering the AI boom.
This is no small business opportunity, given the sheer demands that data centers are expected to put on existing power supplies.
Global data center power demand is expected to increase by more than 150% by the end of this decade. With data centers eating up more and more power, solutions like Bloom Energy’s hydrogen fuel cells may prove critical to facilitating data center construction without significant lag times.
The cells themselves are only half of the story where Bloom Energy is concerned because each one installed also generates an ongoing contract for maintenance and service. These contracts last up to 20 years, providing a significant amount of cash flow for the company on the back end of each sale.
Bloom Energy Crushing Revenues
One of the first things that will likely strike an investor looking at Bloom Energy is its high rate of revenue growth. In Q1, $326 million revenue represented a year-over-year growth rate of 38.6%.
For the full year, management is projecting revenues of $1.65-$1.85 billion, up from $1.33 billion in 2023. It has also gradually moved closer to predictable profitability, though earnings could still be choppy for a while.
Despite being deeply negative through the late 2010s and early 2020s, net margins have improved significantly, bringing it close to the point where it could begin to deliver sustained positive net income.
In Q1, EPS came in at $(0.10), compared to a $(0.25) EPS in the year-ago quarter. Gross margin also widened from 16.2% to 27.2% over the same period.
In line with its gradual move in the direction of profitability, Bloom has made great progress in narrowing its operating losses over the last year.
In Q1 of 2024, the company posted operating losses of $49.0 million. By Q1 of this year, that number had dropped to just $19.1 million.
Pre-Profit StartUp Concerns Rise
Despite Bloom Energy’s potential, chief among the concerns is the fact that Bloom Energy is still operating as a pre-profit startup, a fact that could make the stock both risky and volatile. With the company still being quite young, investors assume a fairly high degree of uncertainty when investing in BE shares.
On a more fundamental level, Bloom Energy’s model of providing cells to data centers to meet growing power demand may not have long-term legs. Though its hydrogen cells represent useful stopgap measures, companies will likely still opt for either traditional utility connections or other forms of on-site power generation in the long run. Microsoft has even floated the idea of powering data centers with natural gas.
This begs the question of what happens when power generation catches up with data center demand. While Bloom’s fuel cells can certainly be used for other applications, the price of the stock right now is somewhat dependent upon data center demand.
Fortunately, the multi-decade service contracts Bloom puts into place can come into play and provide it with predictable cash flows for quite some time.
Finally, Bloom Energy could face some short-term headwinds is the US economy slips into a recession later this year. Though investment in data centers will almost certainly continue in the long run, many companies are temporarily slowing or pausing projects due to trade tensions and macro uncertainty.
These problems will very likely be temporarily, but they could put a dent in Bloom’s otherwise excellent growth trajectory for a brief period of time and potentially cause share prices to slide until a recovery begins.
So, How High Could Bloom Energy Go?
The consensus price target for BE is $23.66, representing a gain of 23.5% from the last close of $19.16. Despite this, however, the consensus rating on Bloom is a hold, rather than a buy.
As one might expect given the opportunities that are in front of Bloom Energy, analysts expect to see the stock outperform over the coming 12 months.
In the short term, the analyst target price range of around $24 per share seems more or less reasonable for BE shares, as that would see share prices move up alongside management’s higher revenue expectations for 2025.
Through 2030, it likewise seems reasonable to suppose that soaring data center demand could keep upward pressure on the stock, potentially pushing it to $50 or more as demand for data center power more than doubles.
Beyond that, however, the outlook gets a bit murkier. Without another source of demand for its cells and the new service contracts that come with them, shares of BE could plateau at some point and struggle to move upward again.
For now, though, Bloom Energy looks like it could be a fairly strong pick-and-shovel play on the AI industry for investors willing to take on a fair bit of risk in exchange for the potential for strong returns over the next few years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
