The Hydrogen Theme Is Outperforming This Year. Will The Gains Continue?

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 gained almost 3% year-to-date, compared to the S&P 500 which remains down by about 4% over the same period. While the broader markets and growth stocks, in particular, have been weighed down by tightening monetary policy, surging inflation, and the Russian invasion of Ukraine, hydrogen stocks are benefiting from a couple of trends.

The ongoing military conflict is making countries more serious about energy independence. Brent crude prices briefly rose to levels of over $125 per barrel in early March, although they have fallen back to levels of around $105 currently. There have also been increasing uncertainties about gas supplies, particularly in the E.U, which imports over a third of its natural gas from Russia. The present crisis is proving to be a wake-up call of sorts for energy importing countries, which are now looking to double down on renewable energy and alternative energy sources, as a means of reducing dependence on imported hydrocarbons.

Investors believe that hydrogen-related stocks could be big beneficiaries of this shift. While renewables such as solar and wind could be used to generate electricity and power light vehicles, hydrogen-related technologies could be key for heavier applications – such as trucking, heating, and industrial applications such as cement and steel manufacturing. Separately, hydrogen can also be used as a means of storing excess renewable energy generated from sources such as solar and wind. To be sure, this transition isn’t going to happen overnight and is likely to be an ongoing process. Moreover, producing clean hydrogen is expensive and governments will likely have to tweak policy and incentivize the sector.

Within our theme, Bloom Energy a company that sells solid oxide fuel cells for electricity generation, has been the best performer, with its stock rising by over 9% year-to-date in 2022. On the other side, Cummins an industrial company best known for its engines and power generation products, has been the weakest performer, with its stock declining by about 6% year-to-date.

Here you’ll find our previous coverage of the Hydrogen Economy theme, where you can track our view over time.


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