Why Is The Hydrogen Theme Underperforming This Year?

Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, has declined by about 13% year-to-date, compared to the S&P 500 which has gained over 16% over the same period. While the hydrogen theme fared reasonably well over 2022, driven by the passage of the Inflation Reduction Act in the U.S., and an increasing urgency to reduce the dependency on fossil fuels given the increase in oil prices following Russia’s invasion of Ukraine, a couple of factors have hurt the theme of late.

Firstly, earnings from hydrogen fuel cell players have been mixed. While FuelCell Energy saw revenue for Q2 2023 more than double, Q2 net loss widened to $35.1 million from a loss of $31 million in the year-ago period. The company’s backlog also fell 23% year-over-year to $1.02 billion. Bloom Energy
BE
also saw its net loss come in wider than expected, with revenue also missing estimates for Q2. Separately, some solar energy companies with exposure to the residential solar space, which are also part of the theme, have been weighed down by regulatory changes in California, the largest solar market in the U.S. Higher interest rates are also making it more expensive to fund renewable energy projects.