Is Plug Power Stock a Buy Right Now?

Key Points

• Rising demand for AI infrastructure could be a boon for hydrogen stocks.

• Plug Power's financials remain a critical challenge for shareholders.

• 10 stocks we like better than Plug Power ›

Rising demand for artificial intelligence (AI) could create favorable conditions for many hydrogen stocks, Plug Power (NASDAQ: PLUG) included. Companies that operate AI infrastructure like Amazon and Alphabet are racing to build new data centers that are powered by renewable energy. The main challenge isn't in building new data centers, but in scaling up the required amount of renewable energy.

This is where hydrogen fuel comes into play. Hydrogen fuel has long been a promising power source for the renewable economy. But high costs have prevented the technology from being adopted at mass scale. The massive buildout of infrastructure to enable the AI revolution could change all of that. Does that make Plug Power stock a buy? You might be surprised by the answer.

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Artificial intelligence is creating a huge surge in power demand

The world's energy systems are about to be transformed thanks to a huge surge in demand for AI technologies, a surge that is expected to be sustained for decades to come. Energy use by data centers -- critical infrastructure that is largely powering the AI revolution -- has historically grown by 12% or more annually. The sharp uptake in AI demand more recently should see that growth rate rise even higher.

Not only will we see a sharp increase in power demand, but the type of power that will be demanded is expected to change. That's because many technology companies have internal mandates that require high levels of renewable energy. The existing grid isn't transitioning to renewable energy fast enough, causing some companies to build out their own energy supplies. Google, for example, is funding the development of three new nuclear sites in the United States to maintain its position as a carbon neutral business.

According to data from the International Energy Agency, electricity demand from data centers will more than quadruple by 2030. The organization believes that this transition has the "potential to transform how the energy sector works." In other words, expect major shifts in how energy is created, stored, and used in the future. This will include a massive build-out in renewable energy, but also a shift toward private energy generation versus simply tapping into the grid. Companies like Google will create energy generation facilities designed mostly for its own use.

Plug Power has already recognized the opportunity to supply the AI industry with localized, renewable energy. Companies may build out their own hydrogen solutions, but grid operators can also turn to hydrogen in order to compensate for highly variable demand. The company said in a blog post:

As AI demand grows, power grids are struggling to keep up. Hydrogen steps in to help when the grid is under pressure. Hydrogen production systems can quickly adjust how much energy they make based on real-time needs. This helps reduce power costs and prevent blackouts."

For years, the primary issue with hydrogen adoption has been cost competitiveness. But much of hydrogen's high costs come from a lack of scale. Tech giants armed with big budgets could change all of that. After all, nuclear power in the U.S. was long deemed "dead" due to the related exorbitant costs. The rise of AI could finally tip the scales for the world's hydrogen buildout.

Image source: Getty Images.

Is Plug Power stock a buy due to rising demand for AI?

Expect big things when it comes to hydrogen's potential to power the AI revolution. Does that make Plug Power stock a buy? Surprisingly, no.

The challenge with Plug Power stock today isn't necessarily the viability of hydrogen power -- though there are still legitimate questions related to that issue as well. Instead, at least from an investor's perspective, the problem is the company's mounting losses.

In recent years, Plug Power has been posting net losses of around $200 million to $300 million per quarter. That's more than 10% of the company's entire market cap every 90 days. To compensate, the company has turned to government loans and share dilution. Over the past three years, for example, the company's total share count has nearly doubled.

While the AI revolution shows promise for hydrogen power over the long term, heavy share dilution means that Plug Power shareholders today will see their gains diluted heavily, possibly leading to minimal or even negative gains over the long haul. Additionally, there are concerns that Plug Power's technology -- which focuses on proton exchange membrane fuel cells over more efficient and adaptable solid oxide fuel cells -- isn't even the best fit for AI applications. So while hydrogen has the potential to power part of the AI revolution, Plug Power stock in particular still isn't a buy for wise investors.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.