Hydrogen power is often hailed as the ideal green alternative to fossil fuels since it can be produced using renewable energy like wind or solar to produce the electricity needed to split water into its component parts of hydrogen and oxygen. The hydrogen that is extracted is then used to power an engine and the only byproduct of the burned fuel is water. But being an ideal fuel hasn't been enough of an incentive for companies in this sector of the energy industry over the past decade, and many of the market's hydrogen stocks fizzled out.
Industries have been slow to adopt hydrogen power because it currently costs more to produce hydrogen fuel than it does to extract and process oil or natural gas, and it was more cost-efficient to expand existing electrical grids than to build new hydrogen infrastructure. Inflation and elevated interest rates made hydrogen projects more expensive to fund and even less appealing.
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But as hydrogen technologies improve and the macroeconomic environment improves (including interest rate drops), the savings from using hydrogen could offset those initial costs. If that happens, many hydrogen industries could recover. Fortune Business Insights estimates the hydrogen fuel cell market will grow at a compound annual growth rate (CAGR) of 30% from 2024 to 2032, while Research Nester expects the hydrogen vehicle market to expand at a CAGR of 45% from 2025 to 2037.
We should take those bullish estimates with a grain of salt, but two unloved stocks from those two industries -- Plug Power(NASDAQ: PLUG) and Nikola(NASDAQ: NKLA) -- could soar higher as those tailwinds kick in. Both of these stocks are volatile, but they have the potential to turn a modest $200 investment into a few thousand dollars over the next few years.
1. Plug Power
Plug Power mainly provides hydrogen fuel cells and charging services for forklifts in warehouses and fulfillment centers. It's deployed over 69,000 fuel cell systems and 250 fueling stations so far, its top customers include Amazon and Walmart, and it's the world's largest single buyer of liquid hydrogen.
Plug Power's revenue rose 40% in 2022 and 27% in 2023. Most of that growth was driven by two big acquisitions which expanded its cryogenic equipment unit and offset the slower growth of its core hydrogen fuel cell business -- which struggled as the macro headwinds curbed the market's appetite for expensive new hydrogen projects. Its net losses also widened throughout both years as it integrated those acquisitions.
But from 2023 to 2026, analysts expect Plug's revenue to grow at a CAGR of 25% as it narrows its net losses. The U.S. Department of Energy (DOE) also recently granted it a new $1.66 billion loan to build up to six new green hydrogen energy production facilities.
With an enterprise value of $2.67 billion, Plug's stock looks undervalued at 2.3 times next year's sales. It's still a highly speculative stock, but it could rally again as more companies upgrade their logistics networks with its hydrogen charging systems. Its insiders also bought nearly five times as many shares as they sold over the past 12 months, and Norway's Norges Bank recently increased its stake in the company to nearly 8%.
2. Nikola
Nikola produces electric semi-trucks. It initially sold battery-powered electric trucks (BEVs), but it started delivering its first hydrogen fuel-cell electric trucks (FCEVs) this year. It had a rocky start after its public debut in 2020: it broadly missed its original delivery targets, its founder Trevor Milton was convicted of securities and wire fraud in 2022, and a series of battery fires in 2023 forced it to recall all of its BEVs. It's also unprofitable, it nearly quadrupled its share count over the past three years to raise more cash, and it faces stiff competition from Daimler Truck and Tesla in the nascent electric semi-truck market.
But amid all of those challenges, a few green shoots are appearing. Its BEV sales are still suspended as it resolves its battery issues, but it delivered 203 FCEVs in the first nine months of 2024. It expects to deliver 300-350 FCEVs for the full year, and analysts expect its revenue to more than triple to $112 million. For 2025, they expect Nikola's revenue to nearly triple to $328 million as it ramps up its FCEV shipments and restarts its BEV business. Nikola also aims to build a network of 60 hydrogen charging stations across the U.S. with its partner Voltera by 2026.
With an enterprise value of $338 million, Nikola's stock looks dirt cheap at roughly 1 time next year's sales. Its insiders also bought 15 times as many shares as they sold over the past 12 months -- so it might be a tempting longshot play on the hydrogen vehicle market.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Tesla, and Walmart. The Motley Fool has a disclosure policy.
