Key Takeaways:

As a utility-based stock, Bloom Energy has lumpy revenue – which is common in this sector. The stock requires strong risk management due to weak cash and not being profitable, however, the upside is immense should more large data center deals be announced.
The company has deployed 1.3 GW since 2001, yet announced in November a deal for 1 GW with the utility company AEP to power data centers. The deal announced in November will nearly double the company’s fuel cell deployment from one deal; evidence of the booming energy demand from AI data centers. AEP’s customers include Google, Amazon, Microsoft and Meta Platforms.
Bloom Energy has set the bar high for Q4 2024 earnings for growth of 67.7% versus analyst estimates for growth of 42.7%. Results are expected after the market close on February 14, 2025. The CEO and CFO reaffirmed guidance implying Q3 2024 had revenues pushed out to Q4 due to delays.
Bloom Energy is not profitable and is cash flow negative – hence, the first bullet point that this stock requires strict risk management (i.e., we will closely adhere to our stops). However, the company is nearing GAAP profitability with a margin of (-3%) last quarter and management has guided for adjusted operating profits of $75 million to $100 million for FY2024. The adjusted EBITDA margin last quarter was 6.5%.
Nearly 77% of accounts receivable come from just two customers, who are also related parties.

Bloom Energy Shows Initial Promise of Becoming Data Center-Fueled Stock

The Chinese bamboo tree remains dormant on the surface for five years after planting the seeds. While many farmers chalk it up as a waste of time, those who are believers eventually get rewarded as it can break ground and grow up to 90 feet tall in the following five weeks. What appears to be dormant on the surface overlooks the years spent developing its root system underground.

This metaphor applies to many companies that eventually transform into outliers. In Bloom Energy’s case, it would be more than two decades of dormancy that may be leading up to breaking ground in 2025.

Bloom Energy Inc. provides on-site 24/7 power generation using their proprietary solid oxide fuel cells (SOFCs). The SOFCs are stacked up by the hundreds to thousands in Bloom Energy Servers (BES), which enable the conversion of fuels like natural gas, biogas and hydrogen to electricity through a chemical reaction, not combustion, arguably resulting in less emissions.

Hydrogen and biogas fuel sources enable BES produce zero carbon or carbon neutral power. When BES are fueled with natural gas to generate electricity, they do emit carbon dioxide, but significantly less than through the combustion process. Natural gas is currently the primary fuel source for most BES due to the readily available supply of natural gas, established infrastructure and lower costs.

Bloom Electrolyzers are solid oxide fuel cell electrolyzers (SOECs) that can convert electricity into hydrogen, an important decarbonization tool in the energy transition. With that said, most of Bloom Energy Servers use natural gas as their primary fuel source.

Bloom Energy’s management emphasizes the following key points as to why hydrogen fuel cells are well suited as a power solution for AI data centers:

The time response of fuel cells is in the milliseconds. This is a primary point as to why Bloom Energy could secure future data center deals. Here is what management described as to the competitive advantages regarding time to power for fuel cells: “A big shift in our business today is time to power. We are providing solutions to meet the urgent needs of our customers who cannot fulfill their power needs from the grid. In these cases, we rapidly book, build, ship, install and power sites for our customers in a matter of months, a much faster timeline than a grid connection. Such rapid drill activities will necessarily come with timeline variances, both pull-ins and delays, and will affect our quarterly revenue line. You are seeing this in our Q3 numbers.”
Using high-temperature heat to provide cooling could become a key way to use hydrogen fuel cells in data centers. As pointed out by the Fuel Cell and Hydrogen Energy Association, excess heat from fuel cells can be used to cool servers.
Management also stated fuel cells are “pay-as-you-grow” are offer “high-power density” which makes them an economic choice. However, nuclear offers far more power density than fuel cells and thus this is not a primary point for choosing fuel cells over nuclear (in fact, it’s a primary reason to choose nuclear)

Rapid Deployment for Backup or Primary Power, or Utility Transmission:

BES uses core 325 kW base blocks customized to work in parallel with the local electric grid in standby or backup mode to kick in when the local power becomes unavailable. The 325 kW base blocks can be duplicated and scaled up to multiple MWs for any project. They can also be used as the primary power source. They can be used off-grid or parallel as a microgrid. BES has a high density compared to solar or wind of 100 MW per acre with features such as stackable servers and combined heat and power solutions. However, nuclear is in the kilowatts per acre, and therefore, is by far the highest density power solution.

BES can be purchased, customized and installed with ongoing maintenance and support contracts procured with a maintenance agreement or contracted as an energy service for five to 20 years under a Power Purchase Agreement (PPA) with a tolling rate. BES is compatible with utility companies as backup power or behind-the-meter as a more primary power solution.

Bloom Microgrids offer security and flexibility by running alongside the utility in grid-following mode, taking primary control over critical loads and customizing power delivery. During power outages, the BES briefly disconnects from the utility coming online in grid-forming mode, carrying the predetermined load set by the customer. The BES will maintain this load and resume grid parallel operation after restoring utility power.

Rapid Solution for Utility Transmission:

A few months back, our free analysis pointed toward a critical bottleneck in power consumption as GPUs are increasing in power consumption from 75% from the previous generation of Hopper GPUs to now a 300% increase in the next generation of Blackwell GPUs arriving in 2025. The analysis cited Morgan Stanley’s estimates of 5X increase in power demand over the next three years and Wells Fargo estimating growth of 8,050% from 2024 to 2030.

Bloom Energy pointed out an important aspect of fuel cells in clearing this bottleneck which is time to power, including for utility transmission.

Here is what was stated:

“Transmission in the U.S. is going to be a bottleneck for a very long time to come. So, our asset becomes both a transmission asset and an end-user asset. So, to help a utility mitigate the long cycles it's going to take them to get transmission to where they need to supply the power to their customer, a short circuit to that would be to use our box in front of the meter, not have to do transmission upgrades and supply large blocks of power to a customer.”

Heat Capture Helps to Cool GPUs

BES are designed to work with existing carbon capture utilization and storage (CCUS) and combined heat and power (CHP) technologies. CCUS mitigates emissions from natural gas as BESs generate a pure stream of CO2 that can be used or sequestered. CHP allows the exhaust heat generated by BES (operating at a core temperature of 1,500 degrees Fahrenheit or 800 degrees Celsius) to be channeled and made available for use, further increasing the efficiency of the system.

Bloom Energy announced their SOFCs have reached 60% electrical efficiency while using 100% hydrogen. The high-temperature exhaust stream can produce steam in addition to electricity, resulting in 90% lifetime total system efficiency by adding Heat Capture. For example, the BES with heat capture includes applications that use a rear-door heat exchanger, which is one way to cool servers. Rear-door heat exchangers offer near-instantaneous cooling. Per Bloom’s website: “With the Heat Capture option, the exhaust heat exits the equipment at the back of the power module instead of the top and is easily transferred to a heat exchanger system.”

Bloom Energy Customers: AI Drives Up Energy Demand

The Gamechanger Deal: AEP Procures up to 1GW of SOFCs for Data Centers

November 15, 2024, Bloom Energy stock gapped 59% higher to $21.14 from $13.28 on news of a deal with American Electric Power (NYSE: AEP), a major utility company serving 5.6 million customers in 11 states with 29,000 MW of diverse generating capacity, to secure up to 1 GW of Bloom Energy SOFC for their data center customers and other larger energy users. The deal coined itself as the largest commercial procurement of fuel cells in the world. AEP placed an order for 100 MW of fuel cells, with further expansion orders expected in 2025.

While Bloom Energy provided no financial information regarding the deal, S&P Global Intelligence estimates the deal could be worth up to $7 billion in revenues if the full 1 GW is deployed. The initial 100 MW order from AEP is valued at around $1 billion (revealed in the Q3 2023 conference call). The AEP deal would accomplish 77% of the 1.3 GW total deployed by Bloom Energy in the past 24 years. The hype and hope have fueled Bloom Energy's stock into the $20s.

AEP is Finalizing the First Customer Project with More to Come

AEP expects commercial load to grow 20% annually over the next three years, driven by data center development. The company is in the process of finalizing the first customer project agreements, and discussions are ongoing with several other customers. AEP’s hyperscaler customers include Google, Amazon, Microsoft and Meta Platformshyperscaler customers include Google, Amazon, Microsoft and Meta Platforms.

AEP will purchase SOFCs from Bloom Energy with an initial order of 100 MW, with more expected in 2025, and integrate them into their customer energy systems, prioritizing AI data centers. Large customers will cover all costs for the fuel cell projects under a special contract. AEP will oversee deployment and installation at customer sites.
Bloom will supply the SOFCs to AEP, providing the core technology for on-site power generation. Bloom will likely offer ongoing support and maintenance services.

Bloom CEO and founder KR Sridhar commented, “I am delighted that there is strong market recognition that the Bloom Energy platform is the ideal choice for powering AI data centers. We are thrilled to be working with AEP as they lead the charge to bring innovative solutions to the transforming electricity market. With our proven track record of more than 1.3 GW deployed and a fully functional factory that can deliver GWs of products per year, we are ready and able to meet this rapid electricity demand growth."

Customer Concentration is a Concern: Two Customers Account for 77% of AR

As of September 30, 2024, two customers accounted for 77% of total accounts receivables (59% and 18%). The first is the related parties SK ecoplant and a Korean JV. Related parties account for $349.5M in accounts receivables for Q3 2024.

As of September 23, 2023, SK ecoplant held 23.5 million shares of Bloom Energy Class A stock representing 10.5% of outstanding shares, which makes them a related party, valued at around $566 million on December 22, 2023.

Three customers account for 68% of total revenue for Q3 2024, which includes 38% from its "related party" and 20% and 10% from two other customers. Related parties generated $126.6M in revenue in Q3 2024.

SK ecoplant and SK Eternix are subsidiaries of SK Group. SK Eternix was launched in March 2024. On November 7, 2024, SK Eternix and Bloom Energy announced the World’s Largest Fuel Cell Installation in HistoryWorld’s Largest Fuel Cell Installation in History in collaboration with SK Eternix for an 80MW installation looking to commence operations in 2025. The single-site installation will power two ecoparks in the North Chungcheong Province, South Korea.

SK ecoplant: A White Knight with Too Much Leverage

Bloom Energy states that it has incurred losses and negative cash flows since its inception. SK ecoplant (formerly known as SK Engineering and Construction Co.) was a large funder for the company. From 2021 to 2023, Bloom executed new debt offerings, debt extinguishments and conversions to equity (dilution) to grow liquidity to $842 million and $4.6 million in recourse and non-recourse debt at the end of December 31, 2023, classified as long-term debt.

December 22, 2023, SK ecoplant extended its preferred distributor agreement to commit to purchasing 500 MW of Energy Servers from Bloom Energy through 2027, expected to generate $1.5 billion in product and $3 billion in service revenues over 20 years for Bloom Energy. SK ecoplant has made $566 million in equity investment, owning 10% of the company.**

Bloom Energy’s Roster of Customers Are Well Known

Some of Bloom Energy’s well-known customers include Google (400 kW Mountainview, CA, in July 2008), FedEx, Yahoo (1 MW, Sunnyvale, CA, in July 2014), Adobe (1.5 MW San Francisco, CA, 2012), IBM, AT&T (21 MW at 34 sites starting with 10 MW in 2013 in CA, CT, NJ and NY), Honda (1 MW of 5 BES in Torrance, CA), Target, Home Depot, Medtronic (400 kW, Santa Clara, CA), Equinox, Walmart (40+ projects in CA since 2009), Kaiser Permanente (4.3 MW in 7 projects in CA), Comcast and Lockheed Martin. However, the majority of their revenue is derived from three customers. Most of these installs occurred many years ago without follow-on orders.

While Bloom Energy generally has had high renewal rates, some customers opt not to renew their contracts due to various situations ranging from earlier contracts with less favorable terms, shifting energy solutions, changing local regulation and incentives or financial difficulties.

Establishing A Template Moving Forward with Major Utility Companies

Beyond AEP, this deal marks a significant template for future deals with major utility companies. The AEP deal also bolsters Bloom Energy's credibility and sets a standard footprint moving forward. Hyperscalers are in a race for procuring clean energy sources, as evidenced by nuclear energy deals that power their data centers like Constellation Energy's (NYSE: CEG) 20-year PPA with Microsoft Co., Talen Energy’s deal with Amazon.com and Google’s inroads into small modular reactors (SMRs), which AEP is also exploring.

Inflation Reduction Act (IRA) and the Clean Energy Investment Tax Credit (ITC) Impacts

One of the motivating factors for companies to use Bloom Energy Servers is the investment tax credit (ITC) for fuel cells. The ITC provided a 30% tax credit for the installation of renewable energy systems with an efficiency of at least 30%. The credit helped cut down the upfront costs of Bloom’s Energy Servers. Bloom Energy also received a $75.3 million tax credit from the IRS for its manufacturing facility in Freemont, CA, on March 29, 2024. The ITC expired at the end of 2024.

However, the Inflation Reduction Act of 2022 replaces the traditional ITC with the Clean Electricity Investment Tax Credit (CEITC), which is essentially the same but not technology-specific. The focus is on the production of clean energy and not just investment in equipment like the ITC. Clean hydrogen produced through its SOEC qualifies for incentives in the form of production tax credits (PTC). Clean electricity produced by BES when fueled by renewable natural gas and biogas qualifies. Renewable natural gas is produced from natural waste sources, including manure and landfills. While natural gas is a non-renewable fossil fuel, the credit can still apply by meeting emission requirement thresholds.

Additionally, implementing carbon capture technology, blending biofuel additives to natural gas and efficiency improvements can all be applied to reduce emissions. These incentives help to enhance Bloom Energy's value proposition, making its BES more affordable based on the projects and fuel sources.

The new Trump Administration has stated its intention to cut waste from the IRA of 2022, which may impact the clean energy tax credits, PTCs and manufacturing credits to offset the extension of the 2017 Tax Cuts and Jobs Act.

Financials: Improving Trends in 2024 But Still Underperforming 2023 Comparables

Bloom Energy has shown improvement in its financials since Q1 2024. The Company reported a Q3 2024 EPS loss of a penny, missing consensus analyst estimates by 9 cents. Revenues fell 17.5% YoY to $330.4 million, falling short of the $384.24 million consensus estimates. Incidentally, the stock reacted by rising 23% the following day. The market was more focused on the underlying QoQ improvements in the financial metrics, marking a third consecutive quarter of improvements.

Gross margin improved from 16.2% in Q1, 20.4% in Q2 to 23.8% in Q3 2024.
Operating margin also improved from -20.8% in Q1, -6.9% in Q2 and -2.9% in Q3 2024.

Adjusted EPS has improved from -$0.17 in Q1, -$0.06 in Q2 and -$0.01 in Q3 2024.
Free cash flow % has improved from -71.7% in Q1, -54.04% in Q2 and -25.35% in Q3 2024.
Operating cash flow % has improved from -62.6% in Q1, 52.26% in Q2 and -21.03% in Q3 2024.

Operating cash flow improved by $102.1 million in the first nine months of 2024 compared to the prior year from $123.1M in inventory reduction, $166.5M from faster customer payments, $85.8M in reduced deferred revenue, $31.5M in reduced accrued expenses and delayed payments to suppliers.

Q3 2024 Earnings Call: Upbeat Management Stands by FY 2024 Guidance

During the conference call, CEO Sridhar noted the big shift in its business is the time to power. Bloom Energy is able to book, build, ship, install and power sites for customers in a matter of months, which is exponentially faster than a grid connection. However, such rapid drill activities come with timeline variances, pull-ins and delays, as evidenced in Q3. Order diversity was good in Q3, with orders from utilities, data centers and international.

Sridhar remained confident, reaffirming their full-year 2024 guidance ($1.4 to $1.6 billion revenues or $1.5 billion mid-point). BES are purpose-built for data centers. He also noted the ability to provide high-temperature heat to provide cooling is an added benefit for data centers.

Sridhar disclosed the commercial value of the initial AEP order, “A 100-megawatt data center deal has a commercial value of over $1 billion, and so it takes a minute, maybe a long Texas minute, to get a deal done. We are making good progress.”
The SK Eternix deal is also a model the company hopes to replicate in international markets, as the large power block project (80 MW) is a proof point showing Bloom can power large data centers.
Bloom Energy closed a front-of-the-meter deal with FPM Development for 20 MW of Bloom SOFC across two locations in Los Angeles, providing additional capacity to Southern California Utilities.

CFO Dan Berenbaum noted that they generally recognize product revenue as they ship their energy servers for customer projects. Customer projects naturally have schedule variability, positive and negative pulling in or pushing out revenue by a quarter. This was the case in Q3 2024, and Berenbaum stands by the $1.4 billion to $1.6 billion full-year 2024 guidance too.

Analysts Are Mixed on Whether Bloom Energy Can Achieve Full Year 2024 Targets

The Company reaffirmed full year 2024 revenue of $1.4 billion to $1.6 billion or $1.5 billion midpoint, up 12.5% YoY. In order to achieve the mid-point, Q4 revenue would need to grow 67.8% YoY to $598.5 million. This is a tall order, but due to schedule variability, a large chunk of product revenue may have been pushed into Q4.

Bloom Energy could achieve this based upon strong key metrics, such as the high number of products accepted and MW accepted. Products accepted pertain to BES that have been installed, tested and accepted by the customer. MW accepted means the MW capacity of fuel cells is fully installed, operational and accepted by the customer. The revenue can finally be recognized upon acceptance of both metrics when they turn the power on or upon delivery of the product and is subject to the terms of each contract.

The SK Eternix 80MW ecoplant project in South Korea is expected to go online in 2025. If they were able to get a surge in the two acceptance metrics from October through December, then they may recognize the revenue in Q4. In the Q3 conference call Q&A, CFO Dan Berenbaum hinted at SK's receivables, “So, I mean, we're not being specific about what's included in factoring, but I will say that that specific receivable that we've spoken to, the SK receivable, we do expect to collect that before the end of the year.”
Keep in mind that Bloom Energy has $142.1 million in deferred revenues as of Q3 2024. Accounts receivables are $590.79 million of which 59% are from the Korean JV and SK ecoplant (related parties) or $348.67 million.

The trend has been rising consecutively, as evidenced by:

Products accepted rose from 477 in Q1, 673 in Q2 and 737 in Q3 2024.
MW accepted rose from 48 in Q1, 67 in Q2 and 74 in Q3 2024.

In order to achieve the $598.5 million revenue mid-point guidance, with all things being equal, Bloom Energy would need to generate more than Q1 and Q2 2024 combined, meaning at least 1,150 products accepted and 115 MW accepted, theoretically generating $571.1M in Q4 2024. Both the CEO and CFO of Bloom reaffirmed the FY 2024 revenue guidance. This could be a case of revenue pushed-out by a quarter due to schedule variability due to unexpected delays, as Q3 2024 had many installation and maintenance delays.

Here is what was stated on the call regarding the high level of confidence in meeting the total year guidance.

“Based on our current projects and the visibility we have to year-end, I'm extremely confident that Bloom Energy will meet our total year guidance.”

Conference Call Q&A Session Noteworthy Moments

UBS Analyst Manav Gupta noted how the press release underscored the diversity of orders as they came from three different markets including utilities, international power projects and data centers, inquiring if that trend will continue. CEO Shridar expounded on the importance of diversity to make their business less vulnerable to market cycles. Diversity positions them for long-term growth addressing the growing global need for clean and reliable energy solutions. It’s more than power generation but also transmission.
RBC Capital Markets analyst Chris Dendrinos inquired about the rationale for expanding manufacturing capacity in the Fremont, California facility. CEO Sridhar answered that they will have a GW worth of capacity next year for their fuel cells. It’s a preemptive move in light of the rapidly growing market. They also have enough space to add an additional GW as needed. Bloom Energy not only has time to power play but also time to expansion play to meet the “voracious demand” brewing in the marketplace adding, “So we built, we not only selected the factory and the size, but also how we scale to be able to scale extremely quickly as we see the demand go up.”
CEO Sridhar noted that, outside of data centers, Korean volumes are up and stable, but U.S. commercial and industrial are experiencing significant uptake across sectors. Bloom Energy is in active negotiations with multiple partners for the opportunity in large AI data centers. He stated, "Data centers and the entire AI supply chain are going to create a demand unlike any other that we have ever seen since Edison put a grid together. And we are hand in glove for that market.”
Wolfe Research Analyst Chris Senyek wanted clarity on what drives management’s conviction they will meet end of year forecasts. He mentioned the 20 MW FPM order being expected to be delivered by year’s end and SK Eternix deliveries. Berenbaum cited that SK Eternix is 2025 revenue upon commissioning and commented, “But very specifically, when we look at Q4, we're looking at very specific projects that are in various stages of contracting, for example, that lead us to be confident in our ability to hit that full-year guidance. So these are very specific conversations that we have looking at our relationships with our customers on the projects that they are moving forward with.”

Conclusion:

Bloom Energy still loses money on every BES. Demand slowed down in Q3 2024, as evidenced by a 23.3% YoY drop in product revenue, but the CEO and CFO ensured it was due to schedule variability. Underlying metrics have been improving in 2024, with large expectations in Q4 2024 to set the tone in 2025. The SK Eternix 80MW single-site installation is expected to commence operations and generate revenues in 2025. Bloom Energy will also get revenue from the initial 100MW of SOFCs ordered from the AEP deal, but revenue won't be recognized until the product and MW are accepted. The potential upside of $7 billion in revenue looms on additional MWs up to the 1 GW procurement. Bloom Energy has a loan interest payment of $115 million due in August 2025.

The AEP deal has given Bloom Energy stock a 52% premium halo that may erode unless new deals are announced. AEP has already indicated that it’s in the process of finalizing the first customer project agreements, and discussions are ongoing with several other customers. Material revenue growth is likely several quarters away from the AEP deal.

I/O Fund Equity Analyst, Jea Yu, contributed to this analysis

Recommended Reading:

** On October 23, 2021, Bloom entered into a securities purchasing agreement (SPA) in connection to a strategic partnership. SK ecoplant purchased 10 million shares of Bloom Energy Series A preferred stock at $25.50 per shares for $255 million, with an option to purchase additional Class A common stock.

August 10, 2022, SK ecoplant notified its intention to exercise its option to purchase additional Class A common stock, pursuant to a Second Tranche Exercise Notice. SK ecoplant elected to purchase 13,491.701 shares at $23.05 per share for a total of $311 million.

March 20, 2023, Bloom amended the SPA, as they issued and sold 13,491,701 Series B redeemable convertible preferred stock (RCPS) for $311 million in cash. Bloom also entered into a Shareholders Loan Agreement for up to $311 million if needed.

September 23, 2023, SK ecoplant converted all 13,491,701 of the RCPS into Class A common stock. Shares opened the following morning at $13.71.

According to its 2023 10-K pg. 88, Bloom Energy recognizes revenue when they "satisfy a performance obligation ."Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer. However, they don't report remaining performance obligations (RPOs) or backlog information.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Bloom Energy: Fuel Cells for the Booming AI Data Center Trend