If history doesn’t repeat itself, then it certainly can rhyme. Remember one of the ‘stories’ of 2020? Hydrogen was, apparently, going to change the world, ushering in an era where environmentally friendly vehicles would soon be gliding around our streets. Meanwhile, factories would also be running on hydrogen, minimising their emissions. Investors who bought into the narrative would have done rather well that year. Most stocks exposed to the theme rose well over 100% (Plug Power increased by 973% – yes, you did read that correctly – in 2020). Now, however, the average hydrogen play has lost between 70% and 80% of its value from its peak. What lessons can be learned from all this?
Have no doubt, the potential embedded with hydrogen as an alternative energy source is significant. The challenge is the cost and speed at which the industry can scale. We first discussed this topic three years ago. The same dynamics remain at work currently. One recent report shows that to get to a net-zero world might require 500m tonnes of hydrogen annually. To do so, however, would require $20tr of cumulative investment by 2050. At present, less than 0.5% of this sum has been invested.
We recently had the opportunity to participate in a virtual conference where several senior executives from the hydrogen industry presented. The CFO of a European-listed play in the space – whose shares have more than halved from their peak – began by describing his firm as “a technology company.” This always rings some alarm bells for us. Later in the discussion, he elaborated by noting that “we don’t need new technology.” Rather, the challenge is “developing it at scale.” We heard a similar message from a US-listed business (whose shares have fallen by more than 70% from their recent high). “Execution” was cited as the biggest challenge. It’s fair to identify the problems; harder to come up with solutions. If the experience of other alternative energy sources is any template, then it may take some years for the industry to scale fully.
A second crucial lesson that can be drawn from the reversal of (share price) fortunes in the hydrogen space is to consider its implications when it comes to investing in listed AI businesses. We have regularly made the observation in our Blogs that it is crucial to separate hype from reality. Based on how almost every CEO in any industry feels the need to mention AI-related expenditure on its earnings call – references are up 85% year-on-year to an all-time high, per Bank of America Merrill Lynch research – we may be at peak AI mania. If the hydrogen hangover is anything to go by (not to mention what happened when the TMT bubble burst), then it may pay to be wary.
—
Originally Posted June 13, 2023 – High hopes for hydrogen
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.
Leave a Reply
Disclosure: Heptagon Capital
The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document.
The document is protected by copyright. The use of any trademarks and logos displayed in the document without Heptagon Capital’s prior written consent is strictly prohibited. Information in the document must not be published or redistributed without Heptagon Capital’s prior written consent.
Heptagon Capital LLP, 63 Brook Street, Mayfair, London W1K 4HS
tel +44 20 7070 1800
fax +44 20 7070 1881
email london@heptagon-capital.com
Partnership No: OC307355 Registered in England and Wales Authorised & Regulated by the Financial Conduct Authority
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Heptagon Capital and is being posted with its permission. The views expressed in this material are solely those of the author and/or Heptagon Capital and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.
The problem is that the energy density of hydrogen is low compared to traditional fuels. There are not good ways to improve that I think, unless some kind of material can absorb the hydrogen in large quantities at room temperature. Then too the hydrogen most likely is produced by using electricity in some way, and that assumes large sources of electricitiy.
Thank you for sharing, RMQ.