Clean Tech Stocks Navigate Uncertain Waters as Q2 Earnings Loom
As the Q2 earnings season approaches, clean tech stocks like Enovix Corp (ENVX) and ChargePoint Holdings Inc (CHPT) are facing a complex landscape of opportunities and challenges. While the sector recently experienced a surge, driven by strong performances in EV charging and advanced batteries, institutional investor sentiment remains cautious amid concerns about company execution and balance sheets.
Key Takeaways:
- Clean Tech stocks have rebounded in recent weeks, but challenges remain: The sector is up 9% over the past month, but still down 10% year-to-date, highlighting ongoing volatility.
- Enovix and ChargePoint are leading the recent rally: Enovix’s growth is fueled by commercial agreements and production scaling, while ChargePoint benefits from increased EV penetration and potential profitability in the second half of 2024.
- eVTOL stocks are riding a wave of hype, but fundamentals may be lagging: The recent surge in Archer Aviation Inc (ACHR) and Joby Aviation Inc (JOBY) may not be sustainable without concrete earnings improvements.
- Plug Power’s hydrogen journey faces hurdles: The company’s growth trajectory is hampered by policy uncertainty surrounding the 45V tax credit and its impact on clean hydrogen projects.
- Political risks and economic headwinds pose ongoing challenges: The Clean Tech sector must navigate a turbulent landscape, with potential earnings growth and margin improvements weighed down by the upcoming presidential election and broader economic concerns.
Clean Tech’s Recent Rally: A Temporary Surge?
Despite the sector’s recent 9% upswing, clean tech stocks remain down 10% year-to-date, indicating a volatile market. The iShares Global Clean Energy ETF (ICLN) is down 10.61% and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) is down 11.44% YTD, reflecting the ongoing uncertainty.
JPMorgan analyst Bill Peterson notes that institutional investor sentiment is notably cautious, with "elevated short interest pervasive across our coverage universe." Concerns about company execution and balance sheets are keeping investors on the sidelines, awaiting clearer signals before committing to the sector.
Enovix and ChargePoint: Leaders in a Volatile Market
Despite broader market concerns, Enovix and ChargePoint are making significant strides, driving the recent rally in the EV charging and advanced batteries sectors.
Enovix: Scaling Up and Winning Over Investors
Peterson highlights Enovix’s recent success, stating, "Since 1Q, Overweight-rated ENVX has announced several commercial agreements in the smartphone and mixed reality spaces, providing investors with more evidence of technology validation in consumer electronics." These strategic moves, coupled with plans to scale up production at Fab-2, address investor concerns about the company’s growth trajectory. This positive momentum has prompted Peterson to raise Enovix’s price target from $12 to $18.
ChargePoint: Poised for a Strong Second Half
ChargePoint is steadily carving out its position in the rapidly growing EV charging sector, buoyed by the increasing penetration of EVs. Peterson notes that "Considering the mixed demand environment overall, we think 2Q is unlikely to mark an inflection point for US EV Charging companies, but there will likely be sequential improvement to both top-line and margins with bigger improvements slated for the 2H contingent upon EV demand recovery and cost reduction efforts." ChargePoint’s potential reaffirmation of year-end profitability targets could fuel a strong second half of 2024, underpinned by improved demand and cost-cutting measures.
eVTOL Stocks: A High-Flying Market, But Fundamentals Matter
The Advanced Air Mobility (AAM) sector, represented by companies like Archer Aviation Inc (ACHR) and Joby Aviation Inc (JOBY), is experiencing a recent surge in stock prices. However, Peterson cautions that this momentum may not be aligned with underlying fundamentals.
"While US-based JOBY and ACHR have rallied 25-30% over the last 1-month period, we think the stocks have moved ahead of fundamentals given few changes in either company’s stories that de-risk the earnings outlook," he said.
While these companies are inching closer to FAA certification, upcoming catalysts like airline purchase orders could provide the necessary justification for their valuations. However, investors need to remain mindful of the gap between hype and concrete earnings improvements.
Plug Power’s Hydrogen Hurdles: Policy Uncertainty Casts a Shadow
The hydrogen sector, where Plug Power Inc (PLUG) leads the charge, faces significant policy uncertainty surrounding the awaited 45V tax credit guidance. This delay has stalled clean hydrogen projects, creating a hurdle for Plug Power’s growth trajectory.
Peterson emphasizes, "We think 2Q top-line results are unlikely to move the needle too much for Neutral-rated Plug Power as a result of the 45V tax credit overhang." Despite these challenges, positive movement in the second half of the year could be driven by improvements in macroeconomic conditions.
Political Risks and Economic Headwinds Loom Over Clean Tech
The path ahead for the Clean Tech sector in 2024 remains uncertain. Although companies are expected to project revenue growth and margin improvements in the coming quarters, Peterson acknowledges the persistent volatility tied to the upcoming presidential election.
"Earnings commentary is likely to include views on political risk from the upcoming presidential election, demand in 2H24 assuming macro improvement, access to liquidity or means to reduce cash burn if the macro does not improve, as well as path to profitability for those who have yet to announce formal targets," he advises.
As Clean Tech companies like Enovix, ChargePoint, Archer Aviation, and Joby Aviation lead the charge, the sector stands at a crucial juncture. The potential for technological breakthroughs coexists with a challenging investment landscape, necessitating cautious optimism from investors.
