The rise of the artificial intelligence (AI) industry has led to a corresponding rise in electricity demand, as the data centers that support those ever-increasing algorithm calculations require vast amounts of energy. As the use of AI spreads further, the need for easy-to-deploy, sustainable energy sources will only intensify.
Bloom Energy (BE -5.88%) is poised to benefit from that intense need. It has emerged as a compelling provider of renewable energy with its easy-to-deploy, reliable fuel cells. Recently, it secured an agreement that could pave the way for more significant deals, and in response, the stock surged by 186% in November.
With energy demand rapidly evolving, is this a smart time to buy Bloom Energy?
Helping companies address growing energy demand
Bloom's solid oxide fuel cell technology converts various fuel sources into electricity without the use of combustion. It provides reliable, low-carbon energy and microgrid solutions for customers looking for resilient power sources. The Bloom Energy server can make use of a variety of renewable fuels, including biogas, natural gas, and hydrogen, enabling these cells to produce power with reduced emissions.
What makes Bloom's technology particularly appealing is that it can be deployed to a site and operational in as little as 50 days and can supplement energy currently supplied by the grid. It could also allow a data center to function as an "island" entirely separate from the electrical grid.
Bloom's recent deal is "a potential game-changer"
On Nov. 14, American Electric Power signed an agreement with Bloom Energy to purchase up to 1 gigawatt (GW) of solid-state fuel cells for its data centers. This collaboration comes as existing grid infrastructure is proving insufficient to meet data centers' exploding demands.
Image source: Bloom Energy.
American Electric plans to put Bloom's fuel cells to work for commercial and industrial applications. The investment bank Evercore ISI described this development as a "big win" for the company, while Morningstar says the deal is "a potential game-changer for Bloom."
However, investors should be aware that the agreement isn't a firm order. American Electric has merely secured the option to purchase those fuel cells, giving it flexibility as it gauges changing energy needs. The company has already ordered 100 megawatts (MW) of fuel cells, and says it plans to ramp up orders in 2025. That said, the trajectory of the remaining 900 MW remains uncertain.
What's next for Bloom Energy?
Bloom Energy has been a money-losing operation since it went public in 2018. Over the past 12 months, it has lost nearly $130 million on $1.25 billion in total revenue.
BE Revenue (TTM) data by YCharts.
Bloom Energy has improved its margins, but it needs to sign more big clients to validate its products and business model further and push toward positive cash flow. So far this year, it has made excellent progress.
In May, it announced a power purchase agreement with Intel to install several additional megawatts of Energy Servers at Intel's high-performance computing data center in Santa Clara, California. In July, it inked a deal with Nvidia-backed AI hyperscaler CoreWeave to provide on-site power for its high-performance data center in Illinois.
Analysts at Morgan Stanley say the arrangement with American Electric will help address the time-to-power constraints that data centers encounter. By deploying these fuel cells, American Electric will be able to quickly boost its operational capacity and respond to market demands. The analysts raised their estimates for Bloom's earnings before interest, taxes, depreciation, and amortization (EBITDA) by 35% for 2025 and 62% for 2026, based on the expectation that the full 1 GW order will be fulfilled over the next four years.
Is Bloom Energy stock a buy?
The world's energy needs continue to grow, and Bloom Energy offers a particularly appealing option because its products can be deployed rapidly. Contrast that with a traditional nuclear energy power plant -- those take years to bring online. Meanwhile, the first small modular reactors, which should be faster to build than the older models, may not be operational until the 2030s.
Bloom's partnership with American Electric will help it showcase its ability to provide quick, scalable energy solutions. It also puts Bloom in a prime position with American Electric, which forecasts a 20% annual growth in its commercial load over the next three years.
Bloom Energy stock is a high risk, and its recent run-up has it valued at around 64 times next year's earnings, so it's not cheap by any means. However, the company's growth story is compelling, and the stock could be a worthwhile holding for long-term investors with a high tolerance for risk.
