Shares of Bloom Energy (BE -5.88%) rocketed 185.9% in November, according to data from S&P Global Market Intelligence.
Bloom makes a type of fuel cell server that can generate electricity from either natural gas, biogas, or hydrogen without combustion. The lack of combustion lowers CO2 emissions and other pollutants, making Bloom's servers an intriguing option for power-hungry artificial intelligence (AI) data centers.
To that end, in November, Bloom announced a blockbuster deal with a major utility to provide electricity to its data center customers.
A momentous deal
While Bloom actually reported earnings earlier in the month, the biggest driver of its huge November gain was the announcement of a massive supply agreement with American Electric Power (AEP 0.49%), a major utility covering 11 states in the Midwest and Texas areas, to help power AI data centers.
The agreement goes up to 1 gigawatt (GW) of energy, which would be the largest procurement of fuel cells to date and nearly as much as the 1.3 GW Bloom has provided over the course of its entire existence. As part of the deal, AEP has already placed 100 megawatts (MW) of orders for this year, with more expected in 2025.
The announcement followed Bloom's third-quarter earnings report in which revenue declined both sequentially and year over year, missing revenue and earnings-per-share estimates. Still, the stock reacted fairly well to that earnings report, perhaps due to sequential adjusted gross margin improvements. Moreover, the quarter's declines may have reflected project timing rather than a lack of demand since management kept its full-year outlook intact and announced several new large projects and follow-on orders with Korea's SK Eternix and Taiwan's Quanta Computer.
Bloom looks pricey, but is it?
Bloom looks very expensive today at a $6 billion market cap since it's not profitable and trades at roughly 70 times next year's adjusted earnings estimates, which have recently been increased to reflect the AEP deal. But in light of the massive order from AEP and the prospect of other utilities potentially needing its fuel cell solutions, investors may use some imagination to speculate about how much revenue and earnings Bloom can make in the years ahead.
That will require more extensive research on the real AI opportunity for Bloom, so the stock is now appropriate only for investors well informed on the size of the potential market within utilities or for those looking to speculate. It's hard to attribute a solid valuation to this fast-moving company.