Where Will Plug Power Be in 10 Years?

Plug Power(NASDAQ: PLUG) just reported surprisingly positive quarterly earnings. Sales surpassed $700 million over the past year, with positive gross margins achieved during the fourth quarter. Management also outlined several strategies for reducing cash burn, a long-time area of concern.

With a new CEO at the helm, big promises are being made about Plug Power's future. But what exactly should investors expect over the next 10 years? The answer might surprise you.

Plug Power may benefit, but will investors profit?

Plug Power primarily makes its revenue by designing, manufacturing, and selling hydrogen fuel systems. Hydrogen fuel has many potential benefits. According to the Department of Energy:

Hydrogen can be produced from diverse domestic resources with the potential for significantly reduced air pollution. Once produced, hydrogen can generate electrical power in a fuel cell, emitting only water vapor and warm air. It holds promise for growth in both the stationary power and transportation energy sectors.

In short, hydrogen fuel can be flexible, portable, and climate friendly -- and there are several promising hydrogen stocks trading on the market today, each with their own strengths and weaknesses. You can even buy into a hydrogen exchange-traded fund if you want to bet on the sector in general.

There's just one issue: cost. The same Energy Department report said: "To be competitive in the marketplace, the cost of fuel cells will have to decrease substantially without compromising performance. The cost to build and maintain hydrogen stations also needs to decrease for the market to support a hydrogen economy."

Image source: Getty Images.

In all, a handful of experts believes hydrogen fuel will be cost competitive with traditional sources like fossil fuels by 2030. But many don't see cost parity being reached until 2040, or even beyond.

This is a major problem for Plug Power, whose management is currently pitching the building boom in artificial intelligence (AI) data centers as a source of potential growth. Yes, AI data centers are hungry for more power. But they're not willing to acquire it at any price. We're seeing rising interest in novel technologies like small modular nuclear reactors, yet we still have very few firm commitments, and even fewer real-world examples proving cost.

Even if hydrogen fuel becomes cost competitive by 2030, there's no guarantee that Plug Power's specific design approach will be the winning technology. And even if it is, the company will likely remain in cash-burn mode until then.

Plug Power posted a net loss of $1.7 billion last year -- nearly half of its current market value! And last quarter, despite positive gross margins, the company still managed to post a net operating loss of more than $700 million due to asset impairment charges.

The company will need to continue to raise fresh capital to cover its cash burn -- a reality that likely won't change for years to come, perhaps for another decade. Even if things turn a corner sometime over the next decade, the accumulated share dilution may simply be too much for long-term investors to profit. So even assuming a more positive outlook, that likely share dilution over the next five years continues to keep me on the sideline as an investor.

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.