Here’s Why Plug Power Stock Looks Poised to Rally

By Larry Ramer

Forgive the alliteration, but powerful, positive, potential catalysts continue to emerge for Plug Power (NASDAQ:PLUG) stock.

On Oct. 7, the hydrogen juggernaut announced that it had “signed a binding framework agreement” with Australia’s Allied Green Ammonia. Under the agreement, Plug Power will supply a huge three gigawatts of electrolyzers to the antipodean firm. 

Plug expects to deliver its electrolyzers, used to develop green hydrogen, to Allied Green in 2026 or early 2027. Allied intends to convert green hydrogen into ammonia. 

Importantly, Allied “is in the process of developing… the green ammonia production facility,” Plug said. The Australian firm, whose plant will be “designed to produce approximately 2,700 metric tons per day of green ammonia, has already secured customers in Asia and Europe.“ 

Also noteworthy is that these customers’ demand for green ammonia is increasing, Plug indicated. 

One of Allied’s largest prospective customers is Trammo, which describes itself as “a leading international merchandising and trading company that markets, trades, transports and distributes key raw materials used in industrial processes and fertilizer production globally. “ 

In May, the firm signed a memorandum of understanding with Allied Green, outlining a deal for Trammo to “purchase up to 100% of the green ammonia produced by” Allied Green’s upcoming facility.” 

According to Forbes, Trammo generated $6.4 billion of revenue in 2023. In light of Trammo’s high revenue and its tremendous interest in Allied Green’s facility, I don’t expect the latter firm to have trouble attracting the necessary funds to complete the project. Further, Allied Green, as of September, was reportedly in talks about obtaining funding equal to about 70% of the engineering, procurement and construction costs of the facility from the Spanish government.

Therefore, I do expect Allied’s project to be completed, allowing Plug Power to get a huge revenue surge by selling its electrolyzers to the Australian firm for use in the gigantic project. 

Plug’s Electrolyzer Business is Already Taking Off

The company’s electrolyzer business is already growing rapidly. Specifically, sales from the business jumped to $57.8 million in Q3 up from $26.63 million during the same period a year earlier. Moreover, Plug estimated that, over the next one to two years, it would generate nearly $270 million of revenue from its current “unsatisfied or partially unsatisfied performance obligations” related to electrolyzers. The company based the estimate on its performance obligations as of the end of Q3. 

The higher electrolyzer sales are likely a key reason for the notable improvement in Plug’s gross margin last quarter. Specifically, the firm’s gross margin from “sales of equipment, related infrastructure, and other” came in at -40% in Q3, much better than the -64.5% gross margin that it generated in the nine months that ended in September. Overall, its gross margin was -57.6% in Q3, versus -89.3% for the first nine months of the year and -69.4% in Q3 of 2023. 

I expect the trend of higher electrolyzer sales and improved gross margins to continue for the foreseeable future.

Government Loan Should Be Big Boost to Plug’s Fuel Sales

In May, Plug received conditional approval for a loan guarantee of up to $1.66 billion from the U.S. Department of Energy (DOE). The company intends to use the funds to build up to six green hydrogen production facilities. 

On its Q3 earnings call earlier this month, CFO Paul Middleton reported that “we're working closely with the DOE to finalize the” loan guarantees. He added that “We're targeting to close in the near term.” 

In 2022, Plug Power signed a deal to provide 10,950 tons per year of liquid green hydrogen to Amazon (NASDAQ:AMZN). Plug’s deliveries of hydrogen to AMZN are slated to begin on Jan. 1, 2025. Readers may recall that Walmart (NYSE:WMT) in 2022 obtained an option to purchase as much as 20 tons per day of liquid green hydrogen from Plug Power.

Moreover, I believe that, since Amazon and Walmart have agreed to buy green hydrogen from Plug, other major U.S. retailers are likely to follow suit. With the loan guarantees that Plug Power is likely to receive soon from DOE, it will likely be able to meet and, in the medium-to-long term, profit from this demand. 

Institutional Affinity for PLUG Stock Bolsters My Bullishness

In an Oct. 10 SEC filing, Norway’s sovereign wealth fund, Norges Bank, announced that it had increased its stake in PLUG stock to about 88 million shares from roughly 26 million shares at the end of Q2. 

Already in Q3, 179 institutions increased their positions by a net total of more than 63 million shares of PLUG stock while 195 institutions reduced their positions by a net total of only 26.15 million of its shares. 

Recent institutional affinity for PLUG stock makes me more confident in the name’s outlook. 

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.

Larry Ramer is currently ranked 274 out of 30,171 financial bloggers analyzed by TipRanks, with a 15.1% return on his buy and sell ratings. He is one of the founding contributors to this newsletter. 

Larry focuses on contrary investing and specializes in the renewable energy and consumer discretionary sectors. Among his highly successful, contrarian picks have been Plug Power, Exxon Mobil, solar stocks, and airline stocks. On the downside, he was an early predictor of the collapse of cryptocurrencies, marijuana stocks, Ocugen, and Meta Platforms.