Goldman Sachs Analysts Express Doubt Over Plug Power Stock

1 Reason Goldman Sachs Analysts Are Skeptical of Plug Power Stock

Plug Power's management touts its long-term potential, but some analysts are starting to worry. If you listen to Plug Power's (NASDAQ: PLUG) management team, there's a ton of long-term upside to the company's business. Trillions of dollars are being invested into renewable technologies right now, including hydrogen fuel cells, which Plug Power specializes in. There's a case to be made that the company is primed to ride a tidal wave of investor interest.

Goldman Sachs Analysts Express Doubt

Analysts at Goldman Sachs aren't so sure. In fact, according to a new research piece, there's one factor in particular that they are worried about.

Goldman Sachs analysts are worried about this 1 thing
Plug Power is all in on hydrogen fuel cell technology. The company was founded in 1997 for this purpose. Hydrogen fuel cells are electrochemical units that combine hydrogen and oxygen atoms to produce energy. Hydrogen fuel cells are already being used on a small scale in power plants, vehicles, spacecraft, computers, and cellphones. The issue isn't whether the technology works, but whether it works at scale at an economic price point.

According to the U.S. Department of Energy, "To be competitive in the marketplace, the cost of fuel cells will have to decrease substantially without compromising performance." When might costs fall enough to make hydrogen a viable fuel source for major parts of the world economy? It's hard to say, but there's a good chance this tipping point won't occur this decade.

Analysts Assessment on Market Performance

• Some research says that, even assuming regulatory tailwinds like increased subsidies and a carbon tax, hydrogen fuel cells may not be competitive until the 2030s.
• According to global consultancy McKinsey, "Industry is projected to drive the majority of clean hydrogen uptake until 2030, followed by a wider uptake in new applications by 2050." So there will be growth in demand this decade, but the biggest growth drivers for hydrogen fuel will be in the decades to come.

Goldman Sachs Forecast and Market Trends

1. The firm's forecast claims that investors will remain skeptical of the longest-duration pockets of the equity market.
2. Goldman Sachs estimates that Plug Power has an equity duration of 25.8 years, posing a challenge in the current market climate.

This makes a lot of sense. With both economic and interest rate uncertainty, these far-off cash flows will be extremely sensitive to shifts in investor expectations. Goldman Sachs estimates that Plug Power has an equity duration of 25.8 years. This is roughly the weighted average of the company's expected cash flows.

Verdict: Plug Power may be tapping a potentially huge market, but the gap between today and when that market materializes may be too large in a market where the cost of capital is high and investors are wary of betting on distant cash flows.