These hydrogen stocks just might power up your portfolio

Hydrogen stocks represent companies engaged in the production, distribution, and application of hydrogen energy solutions. Hydrogen, the most abundant element in the universe, offers a compelling alternative to reduce carbon emissions due to its potential for clean and efficient energy production.

As the world pivots towards sustainable energy sources to shift away from fossil fuels, hydrogen technology stands at the forefront of this transformation, promising significant environmental benefits and new economic opportunities. One major reason hydrogen energy stands out in the renewable sector is its ability to deliver high energy output with water as the only byproduct, marking a stark contrast to the pollutant emissions from traditional energy sources.

Investment opportunities and risks

Investing in hydrogen stocks involves engaging with companies pioneering in hydrogen fuel cell technology, hydrogen production (both green and blue hydrogen), and infrastructure development. While the sector promises substantial environmental and economic benefits, it’s also risky. The nascent stage of hydrogen technology means that many hydrogen initiatives are still in developmental phases, with profitability and mass adoption yet to be realized. The high production costs, technological hurdles in storage and transportation, and the need for substantial investments in infrastructure pose significant challenges. Moreover, the sector’s growth potential depends on regulatory frameworks and governmental support that can vary across different regions.

For investors, the dynamic landscape of hydrogen stocks offers a dual opportunity: to contribute to a sustainable future and potentially benefit from the sector's growth as technologies mature and markets for renewable energy expand. Investors must navigate these complexities by balancing the potential risks against the high-potential prospects of hydrogen energy.

Understanding hydrogen energy

Hydrogen energy is a cornerstone in the renewable energy landscape due to its potential to significantly reduce emissions across various sectors, including transportation, industry, and residential energy. Hydrogen energy is generated primarily through the electrolysis of water – an energy-intensive process that splits water into hydrogen and oxygen using electricity – ideally sourced from renewable technologies like wind or solar power. This ensures hydrogen production is environmentally friendly and sustainable.

The stored hydrogen can then be utilized in fuel cells to generate electricity, offering an efficient and clean alternative to conventional fossil fuel-based energy sources. Another key benefit of hydrogen is its versatility. It can be used directly in fuel cells for power generation or as a fuel for vehicles, providing longer range and faster refueling capabilities than battery-electric alternatives.

Moreover, hydrogen can be stored over long periods and transported as needed, making it a valuable asset for energy systems. This flexibility, coupled with its clean credentials, positions hydrogen energy as an integral player in achieving global decarbonization goals. It makes hydrogen stocks a compelling sector for investors looking to contribute to and benefit from the clean energy transition.

Hydrogen stocks to watch

As the shift towards cleaner energy accelerates, hydrogen stocks are capturing the attention of investors worldwide. Ranging from production and technology to fuel cell manufacturing, this market segment offers a variety of entry points into the hydrogen economy. Companies leading this transformation are poised at the intersection of innovation and sustainability, providing intriguing opportunities for high-risk tolerant investors and growth-oriented portfolios.

1. Air Products & Chemicals (NYSE: APD)

Air Products is one of the leaders in the hydrogen sector, recognized for its expansive involvement across various market segments, including industrial gases and chemicals. With a substantial market cap of $64 billion (in September 2024), APD has carved out a dominant position in the global hydrogen market. The company operates over 100 hydrogen plants and boasts the world's biggest hydrogen distribution network, which supports many hydrogen-fueling projects worldwide.

Air Products is pioneering significant advancements in hydrogen energy through strategic projects like the NEOM Green Hydrogen Complex in Saudi Arabia. Slated to begin production in 2026, this facility is poised to become a global leader in green hydrogen production, utilizing 4 gigawatts of renewable power to produce carbon-free hydrogen. Such initiatives highlight APD’s forward-looking approach and its dedication to enhancing hydrogen infrastructure globally.

Air Products trades at a forward price-earnings ratio of 25 and offers a dividend yield of 2.4%. The company’s investment strategy, earmarking $15 billion towards clean energy projects by 2027, aims to further solidify its market position. These ventures, particularly in green and blue hydrogen production, are expected to drive substantial growth, ensuring APD remains at the forefront of the hydrogen energy revolution.

2. Plug Power Inc. (NASDAQ: PLUG)

Plug Power is a pivotal force in the hydrogen fuel cell industry, renowned for its innovation and expansive reach in the hydrogen fuel ecosystem. As a major player, Plug Power has significantly influenced the market by supplying hydrogen fuel cells for a variety of applications, including electric vehicles and stationary power systems. This diversification allows the company to serve large clients like Walmart and Home Depot, enhancing its market presence and stability.

In recent developments, Plug Power has initiated large-scale projects, such as a 25 MW PEM electrolyzer order in Europe aimed at reducing carbon emissions through green hydrogen. The company's strategic expansion includes building an extensive hydrogen refueling network across North America and venturing into Europe. With plans to increase its revenue from just over $1 billion in 2023 to an ambitious $20 billion by 2030, Plug Power is aggressively scaling its operations.

Financially, Plug Power is a speculative investment but remains a top choice for risk-tolerant investors due to its high growth potential. The company's commitment to establishing green hydrogen infrastructure and achieving substantial growth in the coming years places it at the forefront of the hydrogen industry's evolution.

3. Linde plc (NYSE: LIN)

Linde is a stalwart in the hydrogen sector, with a rich history in industrial gases and a progressive focus on hydrogen energy. The company's expertise spans over a century, with significant advancements in hydrogen production technologies, especially in green hydrogen through proton exchange membrane (PEM) electrolyzer technologies. Linde's strategic investments in hydrogen infrastructure highlight its commitment to sustainable energy solutions.

In recent developments, Linde has committed $1.8 billion towards a clean hydrogen project in Texas, expected to commence in 2025. This project, in collaboration with ExxonMobil, aims to sequester over 1.7 million metric tons of CO2 annually, underscoring Linde’s initiatives in reducing carbon emissions in hydrogen production.

Financially robust, Linde also enjoys a market cap of $226 billion, reflecting its strong market position. With projects like the PEM electrolyzer plant set for production and its global presence in hydrogen fueling, Linde is well-positioned to capitalize on the growing demand for clean energy, promising sustained growth and shareholder value in the burgeoning hydrogen market.

4. Bloom Energy Corp. (NYSE: BE)

Bloom Energy is carving out a formidable niche in the clean energy sector with its innovative solutions in hydrogen energy and fuel cell technology. Renowned for its Bloom Energy Server and Bloom Electrolyzer, the company leverages solid oxide technology to enhance efficiency in hydrogen production, offering a 15% to 45% improvement over traditional methods. This technological edge is crucial as Bloom Energy targets key industries such as steel, chemicals, and glass manufacturing for decarbonization.

With recent strategic moves, including a significant partnership with SK Ecoplant and a $250 million green convertible note offering, Bloom Energy is poised for substantial growth. These initiatives are aimed at expanding its clean energy footprint and refining its core technologies. Financially, the company is on a positive trajectory, with a notable 11.5% year-over-year revenue increase in its latest quarterly report and a significant reduction in operational losses.

These advancements underline Bloom Energy’s robust market position and potential to be a leader in transitioning to low-carbon energy solutions. With its strategic expansions and financial health, Bloom Energy represents a compelling prospect for investors focused on green technology and sustainable growth.

5. FuelCell Energy Inc. (NASDAQ: FCEL)

FuelCell Energy stands out in the renewable energy sector, primarily through its advanced fuel cell technologies, which are crucial for decarbonizing power generation and producing hydrogen. The company recently exceeded earnings expectations in its fiscal second quarter of 2024, signaling robust operational capabilities and a strategic edge in its market segment.

FuelCell's expansion into the international market, notably with a significant contract in South Korea with Gyeonggi Green Energy, underscores its global appeal and technological adaptability. This contract involves the purchase of 42 fuel cell modules to power the world’s largest fuel cell platform.

Moreover, the partnership with the University of Connecticut to support its carbon neutrality goals by 2030 with solid oxide fuel cell technology reflects FuelCell’s commitment to sustainable energy solutions. Financial analysts are cautiously optimistic about FCEL’s future, noting a potential upside of 135% in the next twelve months due to these strategic advancements and solid market positioning.

FuelCell Energy’s ongoing projects and partnerships, notably its collaboration with Exxon Mobil to develop carbon capture technology, not only diversify its offerings but also enhance its standing in the green technology landscape.

6. Ballard Power Systems Inc. (NASDAQ: BLDP)

Ballard Power has positioned itself as a pivotal player in the hydrogen fuel cell technology sector, focusing on various applications from public transportation to heavy-duty vehicles. The company's recent launch of a new generation fuel cell engine designed for heavy-duty vehicles highlights its commitment to innovation and positions it for future growth in the renewable energy market. This initiative coincides with Ballard's strategic plans to expand manufacturing capabilities in North America, enhancing its ability to meet increasing demand.

The company's financial health appears robust, as evidenced by a significant increase in order bookings, reflecting strong market demand and customer trust. Ballard's revenue growth, coupled with a healthy order backlog, suggests solid operational efficiency and potential for sustained growth. Additionally, Ballard's collaborations, such as those with European commercial vehicle manufacturers, not only expand its market presence but also diversify its product applications, reinforcing its market position as a leader in hydrogen fuel cell technology.

These factors collectively underscore Ballard's strong market position and promising growth trajectory, making it a noteworthy candidate for investors looking at hydrogen stocks with potential for long-term value creation.

7. Cummins Inc. (NYSE: CMI)

Cummins stands out in the hydrogen and alternative energy sector with its significant advancements and strategic initiatives. In 2023, Cummins launched Accelera, a brand dedicated to zero-emissions solutions encompassing battery systems, fuel cells, and electrolyzers. This move demonstrates Cummins' commitment to leading the clean energy transition, diversifying beyond its traditional engine business into comprehensive clean energy solutions.

The company’s financial robustness is evident from its active expansion into new markets and technologies. Notably, the production of electrolyzers in Minnesota and the development of next-generation hydrogen engines showcase Cummins’ proactive approach to capturing the growing demand for green technology solutions. Such initiatives are poised to bolster Cummins' market position as a versatile power leader, not just in diesel but across a spectrum of clean technologies.

Cummins' strategic partnerships and continued investment in research and development highlight its potential for sustained growth within the renewable energy sector. With a strong financial base and innovative technology offerings, Cummins is well-positioned to capitalize on the global shift towards sustainable energy, making it a compelling prospect for investors interested in hydrogen energy and zero-emission technologies.

Key drivers of the hydrogen market

The hydrogen market is rapidly moving towards providing a sustainable solution to global energy and environmental challenges, driven by a combination of technological breakthroughs and supportive government policies.

Technological innovations: Recent innovations in hydrogen production technologies are pivotal. Advances in electrolysis, which splits water into hydrogen and oxygen using electricity, are becoming more efficient and cost-effective. Innovations also extend to methods of hydrogen storage and transportation, which are crucial for its viability as a widespread energy source. For instance, the development of liquid organic hydrogen carriers (LOHCs) and improvements in fuel cell technology enhance the practical use of hydrogen in various sectors, including transportation and industry.

Governmental policies: Globally, governments are playing a crucial role in accelerating the adoption of hydrogen technologies through strategic policies and investments. Many countries have incorporated hydrogen strategies into their national energy plans. For example, the European Union has launched the European Hydrogen Strategy to increase the production and use of clean hydrogen to help achieve carbon neutrality by 2050. Similarly, countries like Japan and South Korea have committed to becoming hydrogen societies, with investments in infrastructure and incentives for research and development.

Market analysis of hydrogen stocks

In 2024, the hydrogen stock market is positioned uniquely within the broader renewable energy sector, characterized by significant growth potential and distinctive challenges. The global market for green hydrogen, valued at $1.1 billion in 2023, is forecasted to expand to $30.6 billion by 2030, driven by a compound annual growth rate of 61.1%. This surge is fueled by increasing demand for fuel-cell powered electric vehicles and cleaner energy solutions within the power industry.

Technological advancements and substantial investments, highlighted by 1,418 new hydrogen projects in 2023 with investments totaling $570 billion, underscore the industry's rapid development and the growing financial commitment to hydrogen as a key component of the future energy mix.

However, the sector faces hurdles, notably the high costs associated with green hydrogen production and the requisite infrastructure for large-scale implementation. While production costs are expected to halve by 2030 due to economies of scale and technological improvements, the current infrastructure for hydrogen is still in the developmental stages, requiring years of expansion to meet projected demands.

Investment considerations

Investing in hydrogen stocks presents a unique blend of opportunities and challenges. Financially, many companies in the hydrogen sector are in the early stages of development or expansion, which often entails significant capital expenditures and prolonged periods before profitability. This can lead to volatility in stock prices and a higher degree of risk for investors.

However, the long-term prospects for the hydrogen industry appear robust, driven by global shifts towards sustainable energy solutions and substantial governmental and corporate support through investments and favorable policies. As technologies mature and production costs decrease, companies well-positioned in this market could grow considerably.

Investors should consider diversification within their hydrogen investments to mitigate risks. This can include spreading investments across different segments of the hydrogen market, such as production, storage, and fuel cell technology, or incorporating a mix of established players and promising startups. Global X Hydrogen ETF (ticker: HYDR, expense ratio: 0.5%) offers a diversified way to invest in hydrogen stocks across the production, storage, and fuel cell space.

It's crucial to conduct thorough due diligence on the financial health of specific companies, examining their revenue growth, debt levels, investment in R&D, and cash flow management. Given the evolving nature of the hydrogen market, staying informed about technological, regulatory, and market changes is crucial for making informed investment decisions.

Conclusion

The transition toward cleaner energy production is a vital shift in global energy strategies. Hydrogen energy stands out for its promise of high-efficiency and zero-emission solutions, with significant backing from technological advancements and robust government policies. For investors, this speculative industry offers a blend of growth potential and challenges. Understanding the dynamics of hydrogen stocks, from technological developments to financial viability, is crucial. By staying informed and strategically engaged, investors can potentially capitalize on the growing hydrogen market, supporting sustainability while pursuing financial returns.