AI Energy Needs Are Sending Bloom Energy Stock Soaring. Is Now the Time to Buy?

Key Points

The company's revenue has grown strongly, with big deals inked.

Wall Street has been bullish on Bloom, but today's valuation warrants caution.

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Bloom Energy (NYSE: BE) shares have been on an absolute tear lately. This clean energy stock and artificial intelligence (AI) power superstar was trading at about $20 per share this time last year. Before the market opened on May 27, shares were at $302 -- a 1,430% gain over the past year.

Of course, any time a stock's price gains that much within a year, investors would do well to stand back and examine it with a level head. Does Bloom's business support this much growth, or are fundamentals getting crowded out by market hype?

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Big deals are rolling in, but the valuation is an eyesore

Bloom Energy makes solid oxide fuel cell systems for on-site power generation. These giant boxes convert fuel, like natural gas, into electricity through an electrochemical process rather than by burning it. Bloom has been developing this technology for over 25 years, but its business has only recently taken off. Can you guess why? If not, here's a hint: artificial intelligence.

As data centers have begun mushrooming up across the world, tech companies, utilities, policymakers, and local communities have started to realize just how much power these massive computing facilities need. You've probably seen the comparison: A single hyperscale data center with 10,000 square feet of space uses around 100 megawatts (MWs) of power -- enough to power about 80,000 U.S. homes.

Obviously, connecting a single facility with the power needs of a small city isn't something the conventional power grid can handle on its own. In the U.S., thousands of these server farms are being muscled in, many in rural areas where grid power isn't strong enough to handle the extra load.

This is why Bloom's technology is super attractive. The company is essentially stepping in and saying, "Hey, you need power? I can plop a mini power plant in your backyard in about three months." Since the alternative for many data centers is to wait years before they're connected, Bloom's sale pitch has the ring of a pretty good bargain.

Just consider three of Bloom's biggest deals so far:

• A $5 billion agreement with BrookfieldAsset Managementto deploy fuel cells for the asset manager's AI factories. - A $2.6 billion 10-year agreement with Nebius Groupto provide fuel cells for the company's data centers. - An expanded deal with Oracleto provide up to 2.8 gigawatts (GW) of capacity.

Some of this is pretty old news (the Brookfield deal happened last October, and Oracle and Bloom have been partners since last July), but each one has given investors more reason to trust in Bloom's future value proposition: It will be one of the major power suppliers of AI.

Is that reason enough to buy Bloom stock today? Looking at its valuation, there's reason to be cautious. Bloom trades at over 32 times sales, which is extremely rich for a company that sells physical equipment. Another warning sign is its forward price-to-earnings ratio, based on estimated earnings. At more than 147, the market is assuming a lot of future growth.

One thing is clear: Bloom is in the right place at the right time. For long-term investors, a small position in this clean energy company could pay off over the next decade of data center growth.

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Steven Porrello has positions in Bloom Energy and Nebius Group. The Motley Fool has positions in and recommends Bloom Energy, Brookfield Asset Management, and Oracle. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.