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Shares of hydrogen and fuel cell solutions company Plug Power (NASDAQ: PLUG) rose over 9% on Thursday, pricing the stock at $30. Plug Power stock rose after it announced a partnership with e-commerce heavyweight Amazon (NASDAQ: AMZN).
According to the terms of the partnership, Plug Power will supply Amazon with 10,950 tons of green hydrogen each year to power the latter’s trucking fleet and fulfillment center equipment. The agreement is likely to deliver power that will allow Amazon to operate 800 long-haul heavy-duty trucks and 30,000 forklifts.
Kara Hurst, vice president of Worldwide Sustainability at Amazon, stated, “Amazon is proud to be an early adopter of green hydrogen given its potential to decarbonize hard-to-abate sectors like long-haul trucking, steel manufacturing, aviation, and ocean shipping.”
A deep dive into the Amazon-Plug Power partnership
Plug Power delivers fuel cell solutions for supply chain and logistics applications, in addition to electric vehicles and stationary power markets in North America and other international regions. It aims to build an end-to-end green hydrogen ecosystem that includes the production of green hydrogen, storage & delivery, and energy generation.
Plug Power emphasized its deal with Amazon validates its ambitious growth strategy. The two companies could also expand the partnership to add other hydrogen-powered applications such as power generation stations or fuel-cell electric trucks.
In the last 12 months, Plug Power generated revenue of $600 million and is on track to grow sales by 81.9% to $914 million in 2022. Plug Power expects to hit $3 billion in annual sales by 2025, and the Amazon partnership will act as a key driver for top-line growth in the future.
Additionally, the venture with Amazon should accelerate Plug Power’s goal of producing 500 tons of liquid hydrogen each day by 2025.
Amazon also received a warrant to buy up to 16 million shares of Plug Power. It can purchase 9 million Plug Power shares at an exercise price of $22.9841.
Plug Power and Amazon have partnered since 2016, when the tech giant deployed 15,000 fuel cells to replace forklift batteries at multiple distribution centers. Now, Plug Power is looking to gain traction by expanding its hydrogen application portfolio.
Is Plug Power stock a buy right now?
In Q2 of 2022, Plug Power increased sales by 21% to $151.3 million. But it ended the quarter with a negative gross margin of 21%, which was narrower compared to its margin of -32% in the year-ago period. It also reported a net loss of $173 million, an increase of 73% year-over-year.
In addition to revenue projections of $3 billion, Plug Power expects gross margins to exceed 30% by 2025. During the company’s Q2 earnings call, CEO Andy Marsh explained Plug Power expects a “boom” in the green hydrogen and electrolyzer segment due to the Inflation Reduction Act announced recently.
According to Plug Power, the clean hydrogen production tax credit of $3 per kilogram of green hydrogen produced after 2022 under the act may increase cash flows by $500 million each year when its production levels reach 500 tons per day.
Plug Power stock is valued at $17.36 billion by market cap, valuing the company at 19x sales, which is quite steep for a loss-making entity. Despite its sky-high valuation, analysts remain bullish on PLUG stock and expect it to gain over 20% in the next year.