Bloom Energy (BE.US)'s third-quarter results surpassed expectations Morgan Stanley and Bernstein both raised target prices

The Zhitong Finance App learned that, driven by continued growth in electricity demand for artificial intelligence (AI) data centers, US fuel cell manufacturer Bloom Energy (BE.US) performed strongly in the third quarter, with revenue and profit exceeding Wall Street expectations. The company raised its full-year results guidance for the third time in the year. After the financial report was announced, both Morgan Stanley and Bernstein raised the target price of the stock. Among them, Morgan Stanley raised the target price from 310 US dollars to 335 US dollars to maintain the “overholding” rating; Bernstein raised the target price from 282 US dollars to 306 US dollars to maintain the “hold” rating.

Morgan Stanley believes Bloom Energy is continuing to prove its ability to scale up production and meet the power needs of AI data centers and other end markets. Bernstein, on the other hand, pointed out that the company has not only achieved rapid revenue growth, but its profitability has also continued to improve. However, with the rapid expansion of the business scale, operating cash flow and order backlog will become the focus of the market's attention in the next phase.

According to financial data, Bloom Energy's third-quarter revenue reached US$1,236 million, up 138% year-on-year, higher than market expectations of about US$1.07 billion to US$1.08 billion. Among them, product business revenue was approximately US$1.07 billion, up 179% year on year, and became the main driving force for overall growth.

In terms of profit, the company's adjusted profit before interest, tax, depreciation and amortization (EBITDA) for the third quarter reached approximately US$299 million, a significant increase from US$59 million in the same period last year, and also significantly exceeded market expectations. According to data quoted by Bernstein, the indicator was about 24% higher than market expectations; according to the FactSet consensus forecast used by Morgan Stanley, the increase was about 27%.

The company's third-quarter adjusted earnings per share were $0.94, higher than market expectations of $0.68, and significantly higher than $0.15 in the same period last year. The adjusted gross margin reached 34.5%, an increase of about 4.1 percentage points over 30.4% in the same period last year.

Bernstein pointed out that while rapidly expanding the scale of production, Bloom Energy has achieved improvements in product profit margins, showing a strong operating leverage effect. The company's adjusted EBITDA margin has increased from about 11.4% in the same period last year to 24.2%, indicating that revenue growth is gradually being transformed into stronger profitability.

Supported by strong performance, Bloom Energy raised its full-year results guidance for the third time this year. The company currently expects revenue for the full year of 2026 to be between 4.4 billion and 4.6 billion US dollars, higher than the previous forecast of 3.9 billion to 4.2 billion US dollars. The median value of the new guidelines is $4.5 billion, which means that full-year revenue is expected to increase by about 122% year over year.

At the same time, the company raised its full-year adjusted operating profit forecast from US$800 million to US$900 million to US$960 million to US$1.03 billion, and adjusted earnings per share forecast from US$2.55 to US$2.85 to US$3.40.

However, the company still maintained its adjusted gross margin guidance of around 34% for the whole year, and did not increase further as revenue and profit expectations increased.

Morgan Stanley believes that Bloom Energy's gross margin guidelines may be relatively conservative. Although production expansion may bring some cost pressure in the short term, there is still room for further improvement in the company's profit margin as the manufacturing scale continues to expand. The bank currently expects Bloom Energy's adjusted gross margin to reach 35.9% in the fourth quarter and is expected to rise to 39.7% in 2030.

In addition to financial performance, the expansion of production capacity and diversification of demand sources are also important reasons why the two investment banks are optimistic about Bloom Energy. According to Morgan Stanley, Bloom Energy is forming a production expansion path with an annual production capacity of more than 5 gigawatts (GW) to support the growing demand for fuel cells in the future.

The company recently added a new production facility in Fremont, California, and has signed a 12.5-year lease agreement involving approximately 158,000 square feet of plant. Although the exact timing of the commissioning of the new facilities, the scale of capital expenditure and production capacity contributions are not yet clear, management emphasized that the expansion of production capacity will gradually advance according to actual demand.

Bernstein pointed out that Bloom Energy's manufacturing system has shown a clear effect of scale. Management revealed that in the process of expanding production from 1 gigawatt to 5 gigawatts, the number of employees on the core battery stack production line remained at around 600, indicating that automation and production efficiency improvements are reducing the human investment required per unit of production capacity.

Meanwhile, Bernstein's speed of execution in a 300 megawatt (MW) data center project in New Jersey also attracted Bernstein's attention. The project obtained planning approval within three months of signing the contract, and the first batch of equipment was put into operation two months later, highlighting the advantages of the fuel cell solution in rapidly deploying electricity.

In addition to AI data centers, utility companies, international markets, and commercial and industrial customers are becoming new sources of growth for Bloom Energy, according to Morgan Stanley. In the context of large-scale data centers facing challenges such as long grid access cycles and insufficient power supply, Bloom Energy can provide on-site power generation solutions that can be deployed relatively quickly, so it has strong market appeal.

Furthermore, the company is expanding application scenarios combining fuel cells with carbon capture and storage (CCS) technology. Morgan Stanley specifically mentioned that the US power company AEP and Google (GOOGL.US) are collaborating on a 700-megawatt project in Wyoming to use a fuel cell system that supports carbon capture and storage technology.

The bank believes this project could be an important example for Bloom Energy to enter the low-carbon electricity market. As large technology companies seek solutions that balance power supply reliability with emission reduction goals, carbon capture technology is expected to further expand the company's potential market size.

However, Morgan Stanley also pointed out that the business model and economic benefits of related projects still need to be further clarified. Based on confidence in the prospects for capacity expansion and demand growth, Morgan Stanley has drastically raised Bloom Energy's shipping forecast for the next few years.

The bank currently expects the company's fuel cell delivery scale to reach about 2.3 gigawatts and 3.7 gigawatts in 2027 and 2028, respectively, which is higher than the previous forecast of about 1.8 gigawatts and 3.1 gigawatts. Accordingly, Morgan Stanley raised its 2027 and 2028 revenue forecasts by 25% and 20%, respectively, and its EBITDA forecast by 29% and 21%, respectively.

The bank expects that between 2026 and 2030, the compound annual growth rates of Bloom Energy's revenue and EBITDA will reach 45% and 60%, respectively. Based on the above forecast, Morgan Stanley raised the target price of Bloom Energy from $310 to $335, maintaining the “Overweight” rating. Based on the closing price of $217.77 on October 22, the new target price represents a potential upside of about 54%.

Bernstein also acknowledged the company's operating performance and raised the target price from $282 to $306, corresponding to a potential increase of about 41%, but maintained a “hold” rating.

The bank believes that the core issue facing Bloom Energy is no longer whether there is sufficient demand for fuel cells in the market, but whether rapidly growing orders and projects can continue to be converted into cash flow, and whether the company can verify growth prospects through more transparent order backlog disclosure.

Notably, despite strong earnings performance in the third quarter, Bloom Energy's cash flow was still affected by working capital usage and production expansion expenses.

The company's third-quarter operating cash flow was negative $27 million, and free cash flow was negative $181 million. Among them, the increase in contract assets took up about US$430 million in cash, and capital expenditure reached US$153 million.

However, the company's cumulative free cash flow since this year was still positive at 42 million US dollars, and cash holdings at the end of the quarter were about 2.5 billion US dollars.

Management said that as the project reaches the billing and collection points, the relevant contract assets are expected to gradually be converted into cash. At the same time, the company revealed that the current backlog of orders is still growing faster than revenue, but no specific amount has been disclosed, and plans to provide 2027 performance guidance when the fourth quarter earnings report is released.

Bernstein believes that the next quarter will be an important point in testing Bloom Energy's investment logic. If the company can provide more clear order backlog data, 2027 growth guidelines, and evidence of gradual repayment of contract assets, the market's valuation of the company is expected to shift from future growth expectations to actual profit and cash flow generation capacity.