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Ceres Power Holding (LSE: CWR) topped the FTSE 250 in October with a storming 90% price jump. Most of the gain even came before the company rejoined the FTSE 250 on 30 October. What a way to make a comeback!
Ceres develops fuel cell technology, and has had a few false starts so far. The share price is still down about 80% since its five-year high in early 2021.
So what’s behind this new potential kickstart? It’s the same thing that’s powered Nvidia to a $5trn market-cap. We’re talking artificial intelligence (AI).
Fuel cell boost
Ceres’ solid oxide fuel cells aim at clean-energy applications with high and intermittent power needs. It includes things like portable power, mains power stabilisation… and AI data centres.
Korea’s Doosan Fuel Cell has begun ramping up production of Ceres’ fuel cell stacks. The aim is to produce a 50MW generational capacity each year. As Ceres puts it, it “marks the world’s first Ceres metal supported solid oxide fuel cell and systems facility to come on-stream“. First sales are expected before the end of 2025.
In the words of Doosan CEO Doosoon Lee: “Fuel cells, a clean energy solution, are gaining attention as an optimal alternative to various power demands triggered by AI, including data centres.”
A new beginning?
But there’s something bubbling away in the background we need to address. The bubble reference is deliberate — it’s what many think AI stocks are doing at the moment.
And we’ve definitely seen a bit of a worrying strategy developing — ‘look, a good news story about AI, let’s pile in!’ But how long before ‘a bad news story about AI, let’s pile out and run for the hills’?
There are clearly a good few AI-boosted companies whose long-term business models look solid and whose stock valuations aren’t astronomical. But in any new technology boom, the path’s likely to be littered with the companies that don’t make the big time. We need to avoid being among them.
Where’s the profit?
Ceres isn’t profitable yet. The first half of the current year saw an £11.3bn adjusted EBITDA loss. And the consensus among analysts still doesn’t suggest any profit by 2027.
Still, at the interim stage, Ceres had cash and short-term investments of £104m. And the company doesn’t face the high costs of manufacturing. With operating costs of £35.6m in the half, I don’t see any likely cash flow problems.
Broker forecasts are often quickly out of date. Some have already voiced hopes of Ceres turning profitable and cash-flow positive by 2027, or even 2026.
At the end of October, UBS lifted its price target to 350p, from 120p. And in early November, Goldman Sachs set a new target of 480p. These two would suggest potential gains of anything between 18% and 62%.
My verdict
So where does that leave us? With the absence of profit so far, a volatile share price history, possible AI bubble sentiment… Ceres has its risks. But the long-term potential makes me think growth investors could do well to consider it now.
