Bloom Energy is a hold; valuation is mixed (attractive P/E vs. overpriced DCF) and conviction is low.

Bloom Energy has become the preferred energy supplier for companies building data centers that have difficulty accessing or connecting to the local electricity grid . As a result, Bloom Energy's revenue is projected to increase by triple digits by 2026, according to management's forecast.

Because of this success with data centers and large cloud computing companies, I became more interested in Bloom Energy and wanted to take a closer look to determine whether the stock represents a buying opportunity now or if all this success has already translated into a share price increase of over 200% by 2026.

Looking at a graph of Bloom Energy's revenues over the past decade, you can see the impact artificial intelligence has had on the business. Don't misunderstand me, this company was already increasing its sales.

Bloom Energy provides that energy in a reliable and practical way, meaning that companies can rely on it to provide this energy supply framework without much variation in their operations.

The company's products are interchangeable. So, suppose she sent units to operate a particular data center at a particular location and then at the last minute an agreement between the data center and local officials was canceled, delaying that project.

Bloom Energy could then redirect those resources elsewhere and use that energy supply elsewhere .

This gave the company the confidence to build the supply to meet the needs of this unprecedentedly growing industry . And you can see this growth trajectory exploding in 2025.

The company's business has grown from $1.25 billion in revenue to $3.11 billion over the past 12 months. Of course, if the company meets the expectations set by management, it will be another year of 100% growth.

But with Bloom Energy, this is not the case. They are growing their revenue and increasing their profitability at the same time. This is exactly what I love to see.

The company’s operating profit margin over the past twelve months was 11.2%, up from -25% in 2023. Similarly, the company’s return on invested capital has been on a fairly steady upward trajectory over the past decade.

As their business grew in size, they became more efficient at what they did. This allows operational efficiencies to be implemented. Economies of scale and proprietary learning all contribute to the firm's return on invested capital rising to 7.6%, up from -80% in 2017.

The figure itself at 7.6% is not good, and is well below the firm's weighted average cost of capital. If you believe that this number will remain the same for a long period of the company's future, it will not be a good investment.

However, the figure is trending upwards and I expect it to continue rising given the company’s tangible success in this category, where its profit margins for each additional unit are improving, and the size allows for greater efficiencies.

One aspect of these efficiencies becomes clear when we look at the ratio of spending on research and development to revenues. When you are a small company and you invest a certain amount in research and development, that represents a larger percentage of your revenue.

But if you continue to increase your revenue and keep your research and development budget constant , or even increase it but by a percentage lower than your revenue growth rate, then you are expanding and realizing the benefits of economies of scale.

You are spending more on research and development, but it becomes a smaller percentage of your total revenue. This is what is happening at Bloom Energy.

The ratio of research and development to revenue has fallen from about 27% in 2017 to just 7% over the past twelve months . Bloom Energy is already doing that. Therefore, considering this business activity and comparing it to its valuation based on a forward price-to-earnings ratio, it appears to be an attractive opportunity.

Bloom Energy shares are trading at a forward price-to-earnings ratio of 58, which is an attractive valuation for a company that is growing its revenues by 100%, enjoys favorable conditions, and is showing improvement in research and development, returns on invested capital, operating margins, and cash flow. It's an attractive price to buy.

However, I would also like to consider valuation using the discounted cash flow model. Using this model, the stock price does not appear as attractive. Therefore, the current market price of $289 far exceeds my fair value estimate of $147.

I expect strong growth for the company. I estimate that it will generate $390 million in free cash flow in 2026, and that will reach $ 3.94 billion by 2030. So, I am expecting a 10-fold increase in their free cash flow from now until 2030.

Yet, I am getting this relatively low fair value compared to its market price. I think this points to the risks. This is one of the riskiest stocks in the market. It has a beta coefficient of 3.1, which means it is three times riskier than the average stock in the S&P 500 index.

Or to put it another way, if the S&P 500 index rises by 1%, Bloom Energy stock typically moves by more than 3%. Therefore, it is three times more volatile than the S& P 500 index.

This puts it on the riskiest side among all the companies I cover.

Robots and self- driving car technology will all require significant power generation, and I believe Bloom Energy is in an excellent position to capitalize on that.

But the evaluation is what makes me hesitate. At the moment, I would like to see a better valuation for entering this stock. Otherwise, it is one of the most exciting options for supporting the artificial intelligence system .

Currently, I would classify the stock as a "hold" case, but my level of conviction in this assessment is relatively low , which means I may change it in the very near future because the sector is very dynamic and changes very quickly .

If a substantial revision occurs here or there, it could change the situation, because based on the forward price-to-earnings ratio, the stock looks cheap. Only based on my assessment of the discounted cash flows does the stock appear overpriced.