Morgan Stanley explains the $5 trillion hydrogen market and picks its top stocks

Published Thu, Sep 23 20217:20 PM EDTUpdated Thu, Sep 23 20218:46 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at investment bank Morgan Stanley have named their top U.S. and global hydrogen stock picks, after gathering the views of more than 20 of its analysts to cut through the much-hyped sector and its potential to reduce greenhouse gas emissions and create jobs. "Excitement in Hydrogen as the industrial and sustainable disruptor peaked in 2020. As share prices have cooled, we draw on the collective views of our global analysts about what the future holds for this technology; what is hype, what is hope, what is reality?" the bank's analysts led by Edward Stanley and Jessica Alsford wrote in a research note published Sept. 15. Hydrogen has attracted the attention of investors as a "clean" burning fuel that could replace diesel or gasoline and is made via a process called electrolysis. If the electrolysis — which splits water into hydrogen and oxygen — is powered by renewable energy, then the resulting fuel is known as "green hydrogen." It's a sector that will require massive investment, because a vast amount of renewable electricity is needed to power the process, according to Morgan Stanley. The bank estimates a cost of around $2 trillion to $3 trillion by 2030. "Our analysts … calculate a direct Hydrogen TAM [total addressable market] of $800bn by 2050, but also a second-derivative impact surpassing $5 trillion in investment," the research note stated. Morgan Stanley produced a list of 80 stocks exposed to the hydrogen theme, and its analysts are overweight on about 30 of them. Stock picks include those in renewable energy and equipment manufacturers, as well as in hydrogen production and infrastructure. Renewable energy picks Europe is a "bellwether" for the market, as the EU's Hydrogen Strategy has incentives for hydrogen technologies to reach large-scale maturity between 2030 and 2050, Morgan Stanley said. Morgan Stanley is overweight on Spanish firm Acciona Energia , "the world's largest operator in 100% clean energy and renewables" as well as French company EDF and Spain's Iberdrola , two of Europe's largest electric utility companies. It also likes Danish business Orsted , the world's largest offshore wind operator, and Britain's SSE . Also on its renewables list are Chinese renewables firms China Suntien Green Energy and CGN New Energy Holdings . In North America, the bank is overweight Exelon Corp and Public Service Enterprise Group , both of which are "competitive" businesses with "low carbon intensities." Several equipment manufacturers are also on Morgan Stanley's list, including U.S. company TPI Composites , which makes wind turbine blades, and European firm Prysmian , which operates cables. Hydrogen stocks In Europe, Morgan Stanley likes Nel and hydrogen fuel-cell company Johnson Matthey , as well as hydrogen train manufacturer Alstom . The bank's North American picks include Air Products and Chemicals , which makes hydrogen refueling infrastructure and equipment, and Linde , a hydrogen mobility company. It also picked New Fortress Energy , which is developing new hydrogen technology. - CNBC's Magdalena Petrova contributed to this report.

The Linde AG logo on a liquid hydrogen tanker truck taking a fuel delivery at the Linde hydrogen plant in Leuna, Germany, on Tuesday, July 14, 2020.

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