Bloom Energy Is Soaring: Is There a Better Way To Play The AI Power Boom?
Key Points
Artificial intelligence is a big story on Wall Street right now, but investors need to tread with caution.
You may want to avoid high-risk plays like Bloom Energy in favor of something a bit more boring, like Brookfield Renewable Partners.
Bloom Energy (NYSE: BE) has been on a rollercoaster ride over the past year. The stock is up nearly 450% over the span, but it is also in the middle of a deep 45% drawdown. This is actually the second drawdown of that magnitude over the last 52 weeks. Even with Bloom Energy's artificial intelligence opportunity, you'd still need a cast-iron stomach to own the stock. Most investors would likely be better off with a reliable income investment like Brookfield Renewable Partners (NYSE: BEP). Here's why.
Bloom Energy's tech is only just starting to catch on
Bloom Energy makes hydrogen fuel cells. It has been a publicly traded company since mid-2018. It is only now starting to gain momentum as a business, given hydrogen fuel cells' ability to quickly provide off-grid power to artificial intelligence data centers. The story is actually quite attractive, but Wall Street is clearly aware of the potential. Given the drawdown, it seems like investors priced in too much good news too quickly. That's a pretty common occurrence when investor enthusiasm for a hot new technology takes off. And there are really two new technologies at play, with artificial intelligence at the core and Bloom Energy's hydrogen fuel cells adding a little extra flair.
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But if you can't handle the volatility of Bloom Energy's stock, you might want to consider a boring power provider like Brookfield Renewable Partners. It owns a globally diversified portfolio of clean energy assets, including hydroelectric, solar, wind, and storage. It also owns half of Westinghouse, a key supplier to the nuclear power industry. The yield is highly attractive at 4.7%, and the distribution has increased at an annualized rate of 5% over the past decade. (Bloom Energy doesn't pay a dividend.)
Brookfield Renewable is into AI, too
Brookfield Renewable has deals with Microsoft (NASDAQ: MSFT) and Google to supply power for their AI data center build-outs. So, like Bloom Energy, it is already benefiting from artificial intelligence spending. But unlike Bloom Energy, Brookfield Renewable Partners has a much broader business, almost all of which is backed by long-term power contracts.
To be fair, Bloom Energy's business is far more exciting, and it has a material services backlog. But its stock price has also been very exciting. For investors who prefer something a little more reliable (and less exciting), collecting Brookfield Renewable Partners' lofty yield backed by a steadily growing distribution will probably be a better option.
Reuben Gregg Brewer has positions in Brookfield Renewable Partners. The Motley Fool has positions in and recommends Bloom Energy and Microsoft. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.