Morgan Stanley says these hydrogen stocks will win as countries build up their energy infrastructure

Published Tue, Mar 29 202210:24 AM EDT

Russia's war on Ukraine has roiled energy markets around the world, and as nations look to build new energy infrastructure, Morgan Stanley identified companies that stand to benefit from increased focus on hydrogen. Hydrogen can be used across a range of applications — including to power trucks and machines in factories — but the high cost and energy-intensive production has curbed widespread usage. At present, there are many different forms of hydrogen, with colors denoting how the hydrogen is created. Green hydrogen is made using renewable sources like wind and solar, while blue hydrogen is produced from natural gas. There's also grey, yellow, pink and turquoise hydrogen. Looking forward, Morgan Stanley believes costs associated with green hydrogen production will decline 30% by the end of the decade. The firm noted that high commodity prices, in addition to the potential for federal subsidies, will accelerate hydrogen development. Analysts led by Stephen Byrd said that the most immediate opportunity for green hydrogen is in the material handling and forklift market, which has a total address market of roughly $30 billion. Byrd said that transportation — specifically trucking — will be an $11 billion market in North America by the end of the decade. Until green hydrogen reaches cost parity with blue and grey hydrogen, the firm believes blue hydrogen will be more widely adopted by industrial customers. One company that stands to grow market share across different hydrogen markets is Plug Power . "Given PLUG's extensive track record in the fuel cell market, we see a 'virtuous cycle' forming in which the company's cost reductions drive greater sales, which in turn results in greater scale and reduction in per unit costs," Byrd said. Morgan Stanley has an overweight rating on the company, adding that Plug Power's strong balance sheet, scale and vertical integration strategy position it to seize on a growing industry. The firm also pointed to overweight-rated Exxon as another beneficiary from hydrogen infrastructure buildout. The oil giant has pledged to spend more than $15 billion over the next six years on lower-emission initiatives, which includes hydrogen. Morgan Stanley noted that the company has hydrogen projects in development in Canada, Texas and the Netherlands. "As a global energy company with operations across the value chain, we believe XOM is uniquely positioned to implement low carbon technologies at scale," the firm said. The firm also rates Air Products and Chemicals at overweight thanks to the company's exposure to blue hydrogen production at its Ascension Parish, Louisiana facility. "Our refined green hydrogen estimates confirm the view that green hydrogen will be in-the-money for several large industries in the near to medium term," Morgan Stanley said. Chevron and CF Industries also have exposure to the theme, although Byrd as an equal weight rating on each stock. —CNBC's Michael Bloom contributed reporting.

Plug Power hydrogen production facility.

Source: Plug Power