1 Reason I'm Still Holding on to Hope for Plug Power Stock

Key Points

• AI spending is expected to rise by 30% per year for decades.

• Clean hydrogen power could help fuel the AI industry.

• 10 stocks we like better than Plug Power ›

It hasn't been an easy journey for long-term Plug Power (NASDAQ: PLUG) investors. Since going public in 1999, shares have lost more than 99% of their value.

With a market cap of just $2 billion, however, some investors believe this beaten-down growth stock is finally cheap enough for renewed consideration. The artificial intelligence (AI) revolution, it turns out, could benefit the company's bottom line in a bigger way than the market realizes.

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Artificial intelligence could help make hydrogen fuel a reality

At its core, Plug Power is a hydrogen stock. That is, it designs and builds hydrogen fuel systems that can power industrial use cases. While it's possible to produce hydrogen from natural gas or from electrolysis, some experts believe that so-called "green" hydrogen will be the industry's long-term future. This type of hydrogen is produced using renewable energy, making it a reliable source of clean energy for industrial processes.

There's only one problem: On average, hydrogen fuel still isn't cost-competitive with conventional fuels, whether that's solar, diesel, natural gas, or wind. For this reason, the hydrogen fuel revolution has yet to take off. After all, hydrogen fuel offers minimal benefits versus other fuel types if it costs more to use. Additionally, hydrogen fuel infrastructure remains fairly limited. That's mostly because companies don't want to build out the infrastructure necessary to implement hydrogen fuel until it's obvious that hydrogen will be cost-competitive over the long term.

One of the biggest end markets that could potentially use hydrogen fuel long-term is the aviation industry. Aircraft need highly dense fuels like fossil fuels to give them the range and power necessary to fly long distances. Electricity -- whether that's fueled by solar, wind, or even nuclear -- struggles to provide the energy density required. Hydrogen, however, acts much more like fossil fuels in this regard, and thus would be a viable option for the aviation industry. But with hydrogen fuel still costing significantly more than fossil fuels, the industry has yet to convert.

There is, however, one surprising industry that could move toward hydrogen fuel despite the fact that hydrogen isn't yet cost-competitive: the artificial intelligence industry. Spending on AI infrastructure like data centers is expected to rise by more than 30% per year for years, if not decades, to come. These facilities use immense amounts of energy, with many operators having pledged to remain climate-friendly or even carbon-neutral in their operations. Tech giants will require huge amounts of new energy to power the AI revolution, causing many to turn to novel sources of fuel. Some tech giants are even investing billions into nuclear power, restarting facilities that haven't been operating in years.

Plug Power believes its hydrogen fuel systems can help fill the gap. "As AI continues to grow, the need for clean, reliable, and scalable power becomes more urgent," the company said in a blog post. "While fuel cells have long been used in industries like logistics and transportation, they are now becoming a serious option for powering data centers and AI infrastructure."

Image source: Getty Images.

Is it finally time to buy Plug Power stock?

It's reasonable to believe that hydrogen fuel systems can help power the AI revolution. But does that make Plug Power stock a buy?

The idea that hydrogen fuel can help drive demand and economies of scale for green energy isn't new. Hydrogen companies have been talking about it for years. Here's the issue: Plug Power investors don't have years to spare. The company is losing more than $200 million per quarter -- roughly 10% of its total market cap. To plug the financing gap, Plug Power has turned to share dilution, selling massive blocks of stock that keep the company solvent but dilute former shareholders' holdings.

Could AI finally help kick-start the hydrogen revolution? Absolutely. It's a big reason for hope for hydrogen stocks like Plug Power. But even if this transition occurs over the coming years, Plug Power shareholders may see their interests diluted so much that they ultimately gain little from the opportunity. So there's reason for hope from a business perspective, but shares are still likely best avoided by long-term investors.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.