Wall Street Says Plug Power Stock Is a Sell. Here's Why the Bears Are Dead Wrong.

Wall Street isn't crazy about Plug Power (NASDAQ: PLUG) stock right now. The average rating on the stock is a "hold," with an average price target of $3.58. That implies a slight decline during the next 12 months. Several analysts, however, rate the stock a "sell," with price targets implying a decline of anywhere from 25% to 65% during the next year.

Many Wall Street analysts have been consistently bearish on Plug Power stock. Yet the shares have risen in value by more than 350% during the past year. And there's one reason in particular why analysts might still be too bearish on this hydrogen stock.

One reason Plug Power may continue to surprise Wall Street

Plug Power has been in business for decades. By designing, manufacturing, and selling hydrogen fuel systems, the company has consistently positioned itself as a climate change stock. Its technology has the potential to replace conventional fossil fuels with hydrogen, which, at least in some cases, can be produced from renewable energy sources with minimal carbon emissions. Notably, hydrogen fuel is a potential clear fuel source for hard-to-decarbonize sectors like aviation and steelmaking.

There's just one problem: Hydrogen fuel is expensive. In many cases, it's far more expensive than existing solutions, whether that's traditional fossil fuels or popular forms of renewable energy like wind and solar. Without economic viability, hydrogen fuel systems have been reliant on government subsidies, new regulations, and relatively small pilot programs to spur adoption.

"Hydrogen has often been hailed as a fuel of the future, promising a clean and versatile energy source capable of decarbonizing multiple sectors," concludes one industry report. "However, a closer look at the technical, economic, and infrastructure challenges associated with hydrogen reveals that these claims may be overstated. Although hydrogen can indeed be used as a fuel, its inefficiencies, high costs, and logistical hurdles make it a poor alternative to electrification in most applications."

But what if there was a sector of the economy that needed huge amounts of clean energy quickly, so quickly that it's willing to pay a premium? Fortunately for Plug Power, that's exactly what's going on right now.

Image source: Getty Images.

During the next few years, as much as $7 trillion will be spent globally building out new data-center infrastructure. All this infrastructure is needed to support the rapid growth of artificial intelligence (AI) technologies, which rely on data centers to operate.

The current electric grid simply isn't ready for this enormous increase in power demand. That's why novel forms of energy like small modular nuclear reactors have received renewed interest, even though the technology is relatively unproven and possibly more expensive than existing alternatives.

Hydrogen fuel could capture a small slice of this large pie. Already, Plug Power's management team has outlined a plan to target this growth opportunity by positioning its hydrogen fuel systems as a reliable backup solution for data-center operations. Critically, however, it remains unclear whether the data-center industry is interested in this type of solution. Other fuel-cell companies have signed sizable deals with AI and data-center businesses, but Plug Power's technology is arguably less competitive than these competitors, like Bloom Energy.

Similar to many analysts, I'm still not positive Plug Power is a good long-term investment. Hydrogen fuel has proven a difficult business, and steady share dilution will be hard to offset even with rapid top-line growth rates. Still, the company has a clear path toward exceeding expectations, and that path likely involves riding the data-center build-out to support AI's incessant growth.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.