Bloom Energy Stock Is an AI Darling. Why Investors Should Sell Anyway.

Bloom Energy makes fuel cells that turn natural gas or hydrogen into electricity. (Courtesy Bloom Energy)

Key Points

About This Summary

• Jefferies downgraded Bloom Energy to Underperform from Hold, citing “euphoria over fundamentals” after a 540% stock surge.
• Bloom Energy’s stock fell 15% to $65.41, marking a second consecutive double-digit percentage decline.
• Despite deals with Oracle and American Electric Power, Jefferies questions the long-term visibility of significant data-center orders.

Investors have plenty of reasons to be excited about Bloom Energy stock, which has surged more than 540% over the last 12 months. But it’s time to sell, Jefferies says.

The firm downgraded Bloom to Underperform from Hold and lifted its price target to $31 from $24 in a research note Wednesday, arguing that the stock’s rapid ascent is a case of “euphoria over fundamentals.”

Bloom shares plummeted 15% to $65.41 Wednesday, putting the company on pace for a second consecutive double-digit percent decline.

Data centers’ insatiable need for power has fueled Bloom’s rise. The company makes fuel cells that turn natural gas or hydrogen into electricity. It has struck deals with names like Oracle and American Electric Power to help power the data centers behind the artificial-intelligence boom.

Bulls view Bloom “as a key beneficiary as hyperscale cloud operators scramble for fast, off-grid power,” Jefferies wrote. “But this enthusiasm may be overextended.”

Bloom needs to start notching significant data-center orders to justify its valuation, the firm said. The stock trades at around 81 times its projected earnings over the next 12 months, compared to the S&P 500’s 22.9 times multiple.

Its deal with Oracle provides a snapshot into both the opportunity and the challenges Bloom will face. The company said in July that it would power Oracle’s data centers, including deployment to one location in just 90 days. But the size of the deal wasn’t immediately clear, Jefferies noted, and it doesn’t include a multi-year commitment.

“Future Oracle fuel cell orders remain speculative, and Oracle’s own announcement positioned Bloom as one element of its energy strategy,” the firm said.

Bloom didn’t immediately respond to Barron’s request for comment.

The company also agreed in 2024 to provide up to 1 gigawatt of power to American Electric. To reach that level, however, the pair need to attract multiple data center projects that opt for fuel cells over grid connections or other alternative power sources, Jefferies noted.

The company is expanding its capacity—it plans to double its factory output to 2 gigawatts a year by 2027—so orders from other hyperscalers or large utilities providers aren’t out of the question. For Jefferies, the issue is a lack of visibility into those potential orders in 2027 and beyond.

“What will support the stock longer term?” the firm asked. The rapid growth of AI and cloud computing helps, but Bloom itself needs to “put up serious points on the board.”

Write to Nate Wolf at nate.wolf@barrons.com