The hydrogen stock bubble burst, but Bernstein says it's time for a second look at this potential $2 trillion green fuel source

Published Fri, Aug 11 20233:18 PM EDT

Hydrogen equities have been hard-hit in recent months but Bernstein believes the sector remains pivotal to the energy transition and could become a $1 trillion to $2 trillion-size market by 2050. The hydrogen stuck bubble popped due to multiple overhangs, including higher interest rates, lack of profitability and improvements in batteries, according to the firm. But various countries globally have enacted policies supporting hydrogen — with the U.S.'s Inflation Reduction Act, as well as programs in the European Union and China — that support the demand case for hydrogen, analyst Neil Beveridge wrote in a Friday note. "Almost all major energy companies believe that hydrogen will be an important part of their business in the future. There are simply no alternatives in areas such as heavy industry, chemicals, and heavy transport," said Beveridge. The analyst underscored green hydrogen as the driver of momentum in the industry. Green hydrogen is the "cleanest" method of hydrogen production fueled by renewable energy sources, while blue hydrogen is produced from natural gas mixed with hot steam and a catalyst. A mix of green and blue hydrogen will likely be the fastest and cheapest solution to decarbonization, Beveridge said. The analyst noted that over the past year, there has been a 200% increase in blue hydrogen projects announced, amounting to 14 million tons per annum. To be sure, Beveridge admitted the hydrogen industry is still in the early stages of development, and choosing winners is "not easy." "Some investors may prefer to wait until the signs become clearer or growth starts to inflect around 2025. With policies in place to support hydrogen, we remain optimistic. We … see opportunities across the value chain from fuel cells and electrolyzers to industrial gas and equipment makers," Beveridge said. The firm highlighted a handful of stocks that could capitalize from the hydrogen trend. Plug Power is one of the names that made the cut. Although shares have tumbled by more than 27% year to date, the average analyst price target suggests shares could double in value from here, according to Refinitiv. Earlier this week, the company posted mixed results for the second quarter, reporting a loss of 40 cents per share on revenue of $260.2 million. Analysts called for a loss of 27 cents per share and revenue of $237.7 million, per FactSet. Plug Power is targeting $3 billion in revenue by 2025 and $5 billion by 2026, Bernstein noted. The firm said the company has "clear leadership" in terms of electrolyzer deliveries in the U.S. Shares are down 26% in 2023. Bloom Energy is another U.S.-based hydrogen company Bernstein named to its top picks list. Beveridge also highlighted Doosan Fuel Cells, another hydrogen top pick based in South Korea, as a dominant name in developing the technology used for fuel cells in stationary power. The stationary power market is forecasted to grow 75% in 2023 on a year-over-year basis, according to Bernstein. Bernstein has a market perform rating on shares of Bloom Energy. The stock has declined 21.3% year to date. Analysts forecast shares could rally 73% over the next 12 months, per Refinitiv. Doosan Fuel Cell and Beijing SinoHytec, Bernstein's other top picks in the hydrogen sector, are both based outside of the U.S. Doosan Fuel, headquartered in South Korea, trades in the U.S. through over-the-counter securities, while Beijing SinoHytec only trades on the Shanghai Stock Exchange. —CNBC's Michael Bloom contributed to this report.