Bloom Energy (NYSE:BE) manufactures scalable fuel cells for providing on-site power. Shares in the energy startup are up over 63 percent in the last 12 months, with much of this gain related to the increasingly large market potential created by data centers.
Is Bloom Energy an under-the-radar buy, or has the stock risen too much for investors to take a chance on?
Why Bloom May Still Soar on Data Center Demand
A huge part of the reason for Bloom’s rising prices over the last year has been the growing demand that data centers are expected to put on existing power infrastructure.
By 2027, the amount of power consumed by data centers is expected to be 50 percent higher than it was in 2023. By 2030, that number could rise to as much as 165 percent.
This rising power consumption won’t just increase the price of electricity but could also strain available power generation infrastructure.
By 2027, many data centers are projected to be unable to access the power needed to keep them running. The businesses that operate large AI data centers are already scrambling to find solutions to this problem. Microsoft, for example, is exploring natural gas power generation to keep its growing portfolio of data centers running.
Bloom Energy, however, could provide a unique solution, particularly in the short term. The on-site power cells that the business manufactures offer a combination of reliability and scalability, allowing businesses to increase their on-site power generation as needed.
Data centers and other facilities that use Bloom’s fuel cells can also control their own power generation and largely bypass the supply problems that may plague traditional utilities in the coming years.
From an investment perspective, Bloom is also intriguing because of the long-term service contracts that come with its power cells. These service agreements provide a stable, long-lasting revenue base that can continue to grow as more and more fuel cells are produced and installed. This could make Bloom Energy quite attractive from a long-term cash flow perspective.
Can Bloom Deliver on Its Potential?
Though Bloom still has quite a lot to prove, its recent performance has been quite positive. In Q1, the business was able to generate revenue growth of 38.6 percent to a quarterly total of $326.0 million.
Gross margin also expanded dramatically over the past 12 months, rising from 16.2 percent in the year-ago quarter to 27.2 percent. For the full year, management projects total revenue of $1.65 billion to $1.85 billion. At the midpoint of this range, the business would deliver year-over-year revenue growth of 19 percent from the $1.47 billion it generated in 2024.
Taking a full-year view, Bloom’s losses have also narrowed significantly. In Q1 of 2024, the business lost $0.25 per share. By Q1 of this year, that loss had been slashed to just $0.10 per share. Although Bloom Energy is still losing money, the fact that it is making gradual progress toward its breakeven point is encouraging, especially considering the fact that revenues are still growing rapidly.
While Bloom Energy could still have a way to go before it can fully capitalize on the opportunities in front of it, the early indications are quite positive.
There appears to be solid demand for Bloom’s fuel cells, judging by the fact that product revenue rose from $153.4 million a year ago to $211.9 million in Q1 of this year. As more cells are sold, the company can also generate more revenue from installation and service.
Bloom Energy has already acquired several prominent customers, including the likes of Walmart, Verizon and Ikea. This could bode very well for the business, as large customers are likely to invest in additional fuel cells as their power needs grow.
Bloom’s diverse customer list also points to the fact that its fuel cells are in demand beyond the high-growth data center market, potentially giving the business the ability to keep succeeding if and when the current spate of data center construction slows down.
Is BE Trading at a Fair Price?
After rising so much, it’s far from surprising that Bloom Energy may no longer be particularly undervalued.
At 73.4 times cash flow and 3.9 times sales, BE shares may not necessarily be overvalued, but it’s also difficult to call them cheap. The stock’s price-to-book ratio of 9.9 is also quite high, particularly compared to the sector average of 1.8.
Bloom Energy is, however, trading almost exactly at its analyst consensus price target. The average analyst target for BE is $24.46, and the stock is trading at $24.69 at the time of this writing. Institutional investors are also still buying moderately more shares of BE than they’re selling, though both buying and selling activity have slumped in recent months. Taking all of this into consideration, Bloom Energy may be trading at a more or less fair price.
Is Bloom Flying Under the Radar?
With trailing 12-month returns of over 60 percent, it may be too late to say that BE is truly flying under the radar as an investment. With that said, there still appears to be a good argument in favor of Bloom Energy for investors who are willing to take on some risk for a pick-and-shovel play on the data center boom.
Bloom Energy’s innovative on-site power solutions could remain in high demand for several years to come, keeping revenue growth rates up and eventually allowing the business to reach reliable net profitability. Bloom does carry a decent amount of risk as a result of the somewhat speculative nature of its business and the growth premium baked into its valuation.
Current trends, however, suggest that power needs for large data centers and other facilities could go unmet within a few years. If this occurs, Bloom Energy could be in a bit of a unique position to capitalize on both the growth of AI and the general increase in demand for electricity.
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.