Bloom Energy delivered solid Q4 2024 results, culminating in a top-line beat of $64.85 million and a bottom-line beat of $0.12 per share. Revenue surged 60.4% YoY in Q4 to close out the year with positive free cash flow for the first time since 2019. Adjusted operating margin tripled from last year. 2024 laid out the foundation for deals and revenue to accelerate in 2025. Notably, the game-changer deal with AEP was a large driver for Q4.

With that said, energy-related stocks have lumpy revenue, lumpy margins and lumpy cash. Admittedly, fundamental analysis is challenging in this sector as there are often government subsidies to also consider, deal sizes can be enormous yet infrequent, and things change suddenly depending on macroeconomics. Like crypto, due to being absent of reliable fundamentals,  technicals must be in the driver's seat for energy-related stocks, and investors should be prepared to have an active management stance.

The “Game Changer” AEP Deal up to 1 GW of Bloom Fuels Cells

According to Bloom, the company has key advantages by offering solid oxide fuel cells compared to other power solutions such as quick time to deployment, reliability, not needing backups, electrochemical (non-combustion) electricity generation, low to no carbon emissions and easy to obtain air permits.

The company also offers modular fault tolerant architecture, which we covered in the past stating: “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.” Notably, Bloom Energy does not foresee nuclear being a true competitor until 2030: “I really don't think you're going to move the needle, between now and another eight years with nuclear.”

Due to these benefits, utility companies like AEP are contracting Bloom Energy to help serve the outsized power demands that AI data centers requires. We pointed out in our earlier coverage of Bloom Energy, the significant game-changer deal with American Electric Power (AEP) to “secure up to 1 GW of Bloom Energy SOFC for their data center customers and other larger energy users. AEP placed an order for the installation of 100 MW of fuel cells at customer sites, with further expansion orders expected in 2025.

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 Platforms.

• AEP will purchase Solid Oxide Fuel Cells (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. “

AEP’s initial order of 100 MW at $3 per watt would equate to $300 million for the product hardware and $600 million of maintenance services over the following 20 years. The potential product sales for 1GW would equate to $3 billion with potential service revenues of $6 billion over 20 years. The potential total contract value of AEP’s 1 GW deal would be $9 billion over 20 years including products and services.

Bloom is in Talks with Other Utilities for Similar Deals to AEP

The company is using the AEP deal as a template for more deals with utility companies, who can provide Bloom’s solution for their customers. During the Q4 2024 conference call, Morgan Stanley analyst Andrew Percoco asked if they expect more deals like AEP’s with a large utility serving data center customers rather than directly to the data center.

CEO Shrider answered that Bloom Energy is not competing with the utilities but providing them with the ability to service their hyperscaler customers. He said this.

“This is KR and again on your first question, yes the answer is we are talking to several utilities who are interested in some kind of arrangements along the lines of what we announced with AEP. And it is A, they are realizing that no matter how fast they augment their transmission distribution system, no matter where generation happens or not, getting the power to the end customer, between now and 2030, is going to be a big issue unless you produce power where you need it.”

Revenue Rises to Record Levels in Q4 to Close Out a Record Full Year 2024

On Jan 12, 2025, the I/O Fund pointed out that Bloom Energy would need to have a big Q4 with revenue growing 67.8% YoY towards $598.5 million to achieve management’s mid-point guidance, which would imply a large chuck of product revenue being pushed out into Q4. Bloom Energy delivered close enough with 60.4% YoY revenue growth to $572.39 million, firmly beating the $507.54 million by $64.85M. The revenue spike was driven by collecting large receivables from their related party, SK ecoplant.

• Q4 revenue grew by 60.4% YoY and 73.2% QoQ to $572.39 million, compared to the Q3 revenue drop of (17.5%) YoY and (1.6%) QoQ to $330.4 million. Nearly 40% of 2024 total revenue came in Q4. The Company received its large related party, SK ecoplant, receivable in the quarter. Bloom Energy also assisted them in selling a majority of the 73MW of energy servers they held as part of a delayed project.
• Q4 revenue of $572.39507.54 million beat consensus estimates of $507.54 million by 12.78%, compared to Q3 revenue of $330.4 million, missing consensus estimates for $383.19 million by 13.78%.
• Q4 Product and Service revenue surged 67.2% YoY to $525.5 million, compared to Q4 2023 Product and Service revenue of $314.4 million.

Full-year 2024 revenue rose 10.5% YoY to $1.474 billion. Product and Service revenues rose 12.1% YoY to $1.158 billion. Management provided full-year 2025 revenue guidance of $1.65 billion to $1.85 billion, midpoint is $1.75 billion for 19.1% YoY growth.

Key Metrics and Backlog

Bloom Energy closed out 2024 with a total backlog of $11.5B, down (4.96%) YoY, comprised of Product backlog of $2.5B, down (16.67%) YoY and Service backlog of $11.5B, down (4.96%) YoY. CFO Berenbaum pointed out that due to the supply agreement with SK ecoplant, the Product backlog would have been 30% higher, by $900 million, to $3.9 billion. This indicates the Company is seeing more demand for its products.

“We have $2.5 billion of product backlog. Excluding dynamics around our supply agreement with SK ecoplant, our product backlog would have been up roughly 30% year-over-year. As a reminder, at the end of 2023, we had extended the term of our SK ecoplant distribution agreement to the end of 2027, and increased their purchase commitment to 500 megawatts, all of which was included in our year ending 2023 backlog.”

Dropping Product and MW Accepted Metrics as of Q4

CFO Berenbaum noted on the Q4 2024 conference call that the Company is shifting focus away from earlier used metrics that measure kW shipped (IE: Products Accepted and MW Accepted).

Business has “evolved” as Product revenue is now recognized upon shipments, not acceptance as in the past based on grid-connected baseload power or timing of revenue recognition. The Company is now offering a broader range of solutions ranging from microgrids, carbon capture, AI data center solutions to combined heat and power systems, which provide more complex value to customers. Solutions go beyond just energy production and there the focus has shifted to traditional metrics like revenue growth, non-GAAP gross and operating margins, and cash flow from operations. Berenbaum said this.

“As we've discussed over the past few quarters, management is primarily focused on overall revenue, product revenue growth, non-GAAP gross and operating margin and cash flow from operations. In the past when we were primarily shipping grid connected, baseload power, and timing of product revenue recognition was somewhat divorced from timing of product shipments.”

Margins Consistently Expand in 2024

Q4 gross margin was 38.3%, up 47.8% YoY and 60.9% QoQ. This was an improvement over Q3 2024 gross margin of 23.8% versus gross margin of (1.3%) in Q3 2023. Gross margin improved on a sequential basis for Q3 gross margin improving 16.7% QoQ and Q2 gross margin improving 25.9% QoQ. Q1 gross margin fell by -37.4% QoQ from Q4 2023 gross margin of 25.9%.  Management guided the full year 2025 non-GAAP gross margin around 29%.

Non-GAAP gross margin rose to 39.3% in Q4, up 43.4% YoY and 14.1% QoQ. The operating margin turned positive to 18.3% in Q4, up from 3.6% YoY, and from (2.9%) in the previous quarter. Non-GAAP operating margin closed at a yearly high of 23.3%, compared to 7.7% in the year ago period and 2.5% in the previous period.

Bloom Energy drove another record year of double-digit core energy server product cost reduction, which benefits both Products and Services.

Non-GAAP EPS Rises Consecutively for the Fourth Quarter in 2024

Q4 non-GAAP EPS was $0.43, beating consensus estimates for $0.31 by $0.12 or 38.7%, rising 514% YoY from $0.07. This was an improvement over Q3 GAAP EPS of a loss of ($0.01), which missed consensus estimates for a profit of $0.08 by ($0.09), and fell from $0.15 in the year ago period.

Management hinted that Q1 2025 EPS could be up approximately 20% to 30% YoY. For the full year 2024, EPS was calculated using the basic outstanding share count of 227 million, compared to the fully diluted share count of 294 million.

Cash Flows Surge in Q4 Driven by SK Ecoplant Receivables Collection

The collection of SK ecoplant receivables helped operating cash flow surge to $484.23 million, marking the first positive quarter of operating cash flow in 2024. However, a large portion of the cash flow surge came from collecting the SK receivable which was speculated at $325 million by BMO Capital Markets analyst Ameet Thakkar, which is a one off.

Operating cash flow was down ($69.5 million) in Q3. The operating cash flow margin in Q4 was 84.6%, a vast improvement from -21% in Q3.

Free cash flow improved to $473.3 million from down ($83.76 million) in Q3. The free cash flow margin was 82.7% in Q4, up from down (25.35%) in Q3. Bloom Energy closed out Q4 and 2024 was $960.97 million in cash and cash equivalents and debt of $1.12 billion.

Growth By Segment: Products and Services Climb Out of a Hole in Q4

Bloom Energy revenues come in four segments. The largest segment is Product revenue generated from the sale of Bloom energy servers (BES) directly to customers through partnerships and preferred distributor agreements (PDAs). This segment can be lumpy but has been trending in the right direction, starting Q1 2024 with -27% YoY growth to 80% YoY growth by Q4 2024. Bloom Energy closed out 2024 with $2.5 billion in product backlog, excluding the supply agreement with SK ecoplant.

The Services revenue is less lumpy as these are comprised of maintenance contracts and performance guarantees. Extended maintenance contracts are received at the beginning of each service year. Payment comes in the form of a customer deposit that gets recognized over the service period. Q4 non-GAAP gross profit was $4 million in Q4, a vast improvement over a loss of $33 million in the year-ago period. Service was profitable on a non-GAAP basis in every quarter during 2024. Bloom Energy closed out 2024 with $9 billion of service backlog. The Company has a 100% attach rate of service with their product sales. Service contracts can range anywhere from five to 20 years, which is how the large long-term service backlog forms.

**Electricity is a $10 million segment and has been omitted due to being a small fraction of total revenue.

Valuation

Bloom Energy trades at a forward price/earnings (P/E) ratio of 51.72.

The price/sales (P/S) ratio is 3.41, forward P/S is 2.94.

The price-to-book value ratio is 9

The debt-to-equity ratio is 2.616.

Earnings Call:

AI’s $500 Billion Data Center Boom Is Stranded: Power Shortages Demand Urgent Action

The bottleneck with constructing AI data centers lies in the ability to secure the vast amount of power needed to operate them. Power availability is the chokepoint that dictates the entire ecosystem’s viability. Meanwhile, AI components like GPUs have a short shelf life that risks rapid depreciation if power isn’t secured quickly.

I/O Fund pointed out, “Nvidia’s upcoming Blackwell generation boosts power consumption even further, with the B200 consuming up to 1,200W, and the GB200 (which combines two B200 GPUs and one Grace CPU) expected to consume 2,700W. This represents up to a 300% increase in power consumption across one generation of GPUs with AI systems increasing power consumption at a higher rate.“

CEO Shrider gave an example with NVIDIA’s GPUS, “The earnings call from NVIDIA yesterday, okay. Whatever they shipped in that quarter, 90 days, if it were fully facilitized in a data center, will consume anywhere between 2 and 2.5 gigawatts of new power. That's the capacity that's needed. With the growth guidance that they gave you. You fast forward that for the next 12 months. That's just the chips coming from that one company. Fully facilitized will be somewhere in the range of 10 to 13 gigawatts. More than 50% of that is going to stay in the United States. That's more than 6 gigawatts. You're talking about $500 billion worth of infrastructure outside of power. That has to happen even at $5,000. Sorry, $5 billion in terms of facilitating that per gigawatt, that's less than 10%.”

Sridhar underscored the very real dilemma of rapid depreciation for the chips, while trying to secure power. Bloom’s customers are frantic about being able to secure power for this reason.

 “Let me make this very clear. You're spending more than $500 billion building a data infrastructure that needs power. If power is not available, and the chips you're installing there have a very short shelf life, because they become old, every year the value of that chip drops like crazy. So, the time to power premium is so high, and the cost of bringing that power, even if you pay the premium is worth every penny of it.”

This is where Bloom Energy Servers come into play offering “AlwaysON” continuous 24/7 power that’s independent to the electrical grid or used as a backup power source. A Bloom Microgrid can be installed to take primary control over critical loads and customize power delivery. Energy Server blocks are repeatable and scalable with the 325 kW base block, which can be duplicated and scaled to multiple MW for any project.

Time to Power is a Competitive Advantage and Purchasing Criteria

CEO KR Shridar emphasized the competitive advantages that Bloom brings to the table, one of which is the ability to bring clients online quickly. He stated this.

“Four years ago, most of our bookings took two to three years to deploy and convert to revenue. The majority of 2024 revenue came from deals that were both signed and recognized in the same year. I expect us to continue to deploy orders quickly, just as we did in 2024. Because for many customers today, the most important purchasing criteria, is time to power. They need reliable power and they need it now. Our Bloom solution, is purpose built to meet that need.”

The fear of data centers getting priority over commercial and industrial (C&I) companies with the utilities is causing them to seek out off-the-grid solutions as Bloom Energy provides. This just adds to the demand for Bloom’s solutions.

The Need for Less Infrastructure May be Beneficial in this Administration

President Trump has declared a national energy emergency. However, he favors fossil fuels and has vowed to end delays for federal drilling permits for oil and gas production. Trump has and is repealing many of the Biden era environmental agenda including modifying and cutting back the Inflation Reduction Act. However, Trump is a big supporter of AI infrastructure as evidenced by his promotion of the $500 billion Stargate project which is a joint venture between OpenAI, SoftBank, Oracle and MGX. The project will build AI data centers across the country to create jobs and enable AI innovation. Both of these factors play into Bloom’s wheelhouse. By promoting more natural gas production and infrastructure, it enables Bloom Servers to more readily access its most used fuel source, natural gas, as management stated.

“Gas is available, the infrastructure is there. And our solution, without needing to add additional transmission, distribution, and making the average ratepayer incur that cost, is going to be politically very attractive. For all those reasons, we think that that's a great market for”

ITC Credits to End in 2028 for Section 48 Projects Before 2025

Shrider also noted that Bloom’s customers, financiers and other commercial ecosystem partners have collectively secured the option to receive full investment tax credit (ITC) for future purchases.

He said this.

“They are entitled to 40% credits nationwide in light of our U.S. manufacturing and 50% credits in predefined energy communities. They can enjoy the tax benefits for systems placed in operation in the United States between now and the year 2028. This Safe Harbor, if fully exercised, has the potential to yield between $12 billion and $15 billion of gross product revenue to Bloom.”

Under commercial ITC section 48 which was extended to Dec 31, 2024, it allows for a 30% ITC base. There is a 10% when using U.S. made components and an addition 10% bonus if installed in “energy communities” referring to fossil fuel towns with high unemployment (IE: coal mining towns). These result in a maximum 50% ITC credit for projects that started pre-2025, which get a 4 year continuity window which is the Dec 31, 2028, deadline.

This means any of Bloom’s installations started or contracted in 2024 can claim the 40% to 50% ITC is the project is completed by 2028. New projects shift to Section 48E. The $12 billion to $15 billion in potential projects refers to the 1.2 GW installed base and new orders like the AEP deal. The $2.5 billion product backlog is the floor and the $12 billion to $15 billion is the potential ceiling.

Could this have possibly triggered a pull-forward effect on orders and the backlog for Bloom Energy? Very possible. It doesn’t impact Q4 revenues because Bloom only recognizes the revenue when shipped, not on orders placed. However, projects starting after Dec 31, 2024, fall under section 48E, which is the Clean Electricity Investment Tax Credit (CEITC).

This is a technology-neutral ITC introduced by the IRA to replace section 48. However, section 48E requires electricity generation or storage with zero emissions, which favors solar, wind, nuclear and batteries. It excludes natural gas, biogas, CHOP and non-electrical technology. Hydrogen fuel would qualify since there is no carbon emissions from that, but its not very cost effective.

CFO Dan Berenbaum covered the $2.5 billion in products and $9 billion in service backlog. He spoke about the shifting priorities now with the business model.

“As we've discussed over the past few quarters, management is primarily focused on overall revenue, product revenue growth, non-GAAP gross and operating margin and cash flow from operations. In the past when we were primarily shipping grid connected, baseload power, and timing of product revenue recognition was somewhat divorced from timing of product shipments.”

Question and Answering Session: Reading Between the Lines

Bloom’s Business Relies on Third-Party Financing

Bloom Energy’s business is very cash intensive and its ability to deploy its backlog is directly tied to its ability to secure project financing. Its pointed out in the 10-K filing, “We arrange financing for our customers’ purchases of our products based on certain conditions, such as their credit quality and the expected minimum internal rate of return on the customer engagement. If these conditions are not met, we may not be able to find financing for their purchases of our products, which would have a negative impact on our revenue in a particular period. If we are unable to arrange financing for our products, our business could be harmed. Additionally, certain financing options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments, regardless of the products’ performance or our performance of our obligations under the customer agreement. If we are unable to arrange future financing for any of our current projects, it could negatively impact our business.”

CEO Shridar pointed out how capital efficiency and their ability to reduce costs has helped, “So for 2025, so we are being pretty tight about how we manage working capital. We're being very tight around how we manage expenses. We are investing prudently in the right things for the business. And to echo KR's comments, as we've said before, we're quickly approaching about 1 gigawatt worth of manufacturing. We've talked about being able to triple that capacity for roughly $150 million. So as KR said, we're able to grow our capacity in a very capital efficient manner. And to be clear, we will do that when we see the growth.”

Revenue is Now Recognized on Shipments

Wolfe Research analyst Chris Senyek tried to get an idea of the shipments in Q4 from the AEP deal, trying to get a clue if all 100 fuel cells for AEP were shipped in Q4. CFO Dan Berenbaum didn't take the bait and stated they don't talk about the specific timing of shipments for specific customers. However, an interesting point was that their revenue recognition policy has changed from being recognized upon transfer of control to the customer when products are delivered, installed and accepted by the buyer, but now Berenbaum said this.

“Let me just get that out upfront. As I said, in general, we recognize product revenue on shipments that, you know, way back the company used to be divorced a little bit; we used to recognize more of our product revenue on customer acceptance. That shifted a while ago. So now in general, our product revenue is recognized on shipments.“

He added, “And using Bloom to do that is very advantageous for them, from a time to deployment permitting ease, reliability, not needing backups, are being air pollution free, therefore being able to get air permits. For all those reasons, they like our technology. And more importantly, if that growth is being driven by data centers, the reliability of our modular fault-tolerant architecture is unbeatable.”

RBC analyst Chris Dendrinos asked about a breakdown of the backlog between AI and C&I. While CFO Berenbaum bluntly said they were "not going to breakdown the components of the backlog specifically", CEO Shrider did provide some clues.

“I think, we've already given you that kind of numbers, is that roughly one-third of our deployed backlog of greater than 1 gigawatt is towards data centers. And what is happening is that sector obviously is growing a lot faster, than everybody else.”

CEO Shrider also added that Bloom Energy is not dependent on China for the supply chain when asked about tariff implications.

Natural Gas Infrastructure Favors Bloom Energy Servers

Colin Rusch asked an important question about natural gas infrastructure since most Bloom servers use natural gas (not hydrogen) as the primary fuel source. Rusch inquired how much of the backlog was dependent on the incremental execution of gas infrastructure put in place in 2025.

Management didn’t really have much of an answer, “Again, it is a big mix. When we look at quarter-to-quarter, what we implement it is about it like depends on how quickly the projects are ready. That's why we gave it, we give a range of numbers. It's not just whether we can build and ship, it is whether those projects are ready. In many places, it's available. In some places it takes months, and in other places it may be more than a year. So not a single answer to your question. It is across the board.”

Since most Bloom servers operate on natural gas, the infrastructure is important. Schrider talked about regions in the United States and access to natural gas. Very large installations are difficult to do in the Northeast (New York and Massachusetts) due to the lack of gas pipeline infrastructure. West Virginia and Pennsylvania have plenty of gas. He expects Virginia to be attractive and the Great Lakes in Michigan is a “sleeping giant”.

“Gas is available, the infrastructure is there. And our solution, without needing to add additional transmission, distribution, and making the average ratepayer incur that cost, is going to be politically very attractive. For all those reasons, we think that that's a great market for us going forward.”

While Gas Turbines Are Competitors, Nuclear is Not a Concern Until At Least 2030

The demand for onsite power has caused many data centers to turn to gas turbines, like the GE Vernova H-class, to power data centers near term, which is an alternative to Bloom. Natural gas turbines mix compressed air with natural gas ignited at temperatures exceeding 2000 degree Fahrenheit. The hot gas expands through rotating blades that spin the turbine to produce electricity. However, gas turbines emit a lot of carbon dioxide due to their combustion process, whereas Bloom energy servers produce an electrochemical reaction to generate electricity, with no combustion resulting in significantly less carbon emissions.

Management feels secure that they have a six to eight year before small modular reactors come to market. By then, hydrogen could also be more readily available as a economically efficient fuel source.

“We can't afford to wait for nuclear to come before we do AI. So that's what creates this opportunity for the next four to six to eight years. And for us, look, when nuclear comes, the hydrogen play becomes really interesting. Other things become really interesting. So we have pathways – where we can play with those dynamics,” said Berenbaum.

Mitigating Tariffs Headwind Impacts in 2025

When asked about input prices, supply chain and tariff impacts in 2025, Shridar acknowledges that tariffs are potential challenges in their attempts to reduce costs. Tariffs are an unpredictable factor that can impact their operations, but cost reduction is deeply embedded into its business model. This is exemplified by the consistent double-digit cost reductions for the past 12 years, excluding a year of the COVID-19 pandemic, through various methods. The Company recognizes the potential headwinds, but they can be mitigated with cost-reduction efforts relying on their supply chain.

“They come from various different mechanisms, from diversity of supply base, the geographies of where we procure our materials from the efficiency with, which we manufacture, the yield that we get, the engineering advances that we make, all those lead to a cost reduction. So while definitely tariff related issues can be a potential headwind for us, it's one of many factors and we as a company are committed to finding ways around, and still getting to cost reduction.” Bloom is also not overly dependent on China for its components, which offers resilience against potential geopolitical conflicts.

Conclusion: A Strong Growth Pipeline Can Bloom in 2025

Bloom Energy has a compelling story and after two decades, it appears like the stars are aligning for them. Their energy server costs continue to decline, leading to margin expansion. The AI data center boom is power hungry and the game changer deal with AEP enables them to partner with the utilities that are selling the electricity to the data centers. Time to power is definitely a competitive advantage for Bloom. They have demonstrated how they’ve cut time to power down from years to months. Natural gas infrastructure is also a key for them since most of their energy servers run on natural gas, and the United States is the world's largest producer of natural gas and liquefied natural gas (LNG).

Heat capture also boosts the efficiency of Bloom energy servers. We previously wrote.

“BES (Bloom Energy Server) is 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 BES generates 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. The high-temperature exhaust stream can produce steam in addition to electricity, resulting in 90% lifetime total system efficiency by adding Heat Capture.”

It's also important to note the slight improvement in customer concentration expanding from their related party, SK ecoplant and SK Eternix. Customer concentration has improved. At the end of 2024, three customers accounted for 53% of total revenues, of which the related party SK ecoplant was 28%. This is a vast improvement from the end of 2023, where two customers accounted for 63% of total revenue, of which SK ecoplant accounted for 37%.

At the end of 2024, three customers accounted for 76% of total accounts receivables, of which its related party was 23%. This was a vast improvement from the end of 2023, where a single customer, related party SK ecoplant, accounted for 74% of total accounts receivables.

The potential 50% ITC for projects that started before 2025 are also a value proposition that provides a $2.5 million Product backlog floor and a $12 billion to $15 billion ceiling if fully exercised. Bloom didn’t mention much about the AEP deal and what amount of the 100 fuel cells were shipped in Q4. The dramatic revenue and cash flow surge was driven by collecting on SK ecoplant's account receivables rather than AEP orders. If this is the case, then the AEP deal provides a lot of upside in 2025, and management’s guidance may actually be a lowball.

Like the Chinese bamboo tree, 2025 may be the year Bloom Energy breaks ground and growth surges. The story gets more compelling.

Welcome to the I/O Fund’s new Discovery Tier, where we cover a new stock idea on a weekly or bi-monthly basis. We are excited to bring you more coverage from the I/O Fund team geared toward new idea generation only.

Jea Yu, Equity Analyst at the I/O Fund, contributed to this article.

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.

Recommended Reading:

• Nova Limited: Riding the AI/HPC Wave with Advanced Nodes and Packaging
• Monolithic Power Systems: A Back-Half 2025 Hyperscaler Story
• Himax Technologies: A Future Key Player in Silicon Photonics
• Bloom Energy: Fuel Cells for the Booming AI Data Center Trend

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

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** 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.