Plug Power (PLUG) shares rose more than 7% on Wednesday as its impressive quarterly performance continues to woo investors. The stock is now up 70% this year and 367% over the last twelve months.

So, just how much more room is there left to run for this hydrogen-based energy play? A closer look at the charts says there is a bit, and possibly more.

Even at the current price level, Plug Power is yet to retest its current 12-month highs achieved in October last year, while looking further back, it is still multiple times below its 2021/2022 highs.

 

Plug Power’s dip between last October and February this year seems to have been more of a correction from its preceding spike than a fundamentally driven sell-off. Its current climb seems to have put it back on the path it was before the spike, making it a more natural rally.

But are there strong fundamentals to sustain the rally?

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While Plug Power’s most recent quarter results certainly impressed with a 22% revenue growth, it is its PJM hydrogen grid plan that is most exciting for investors. The company is planning to offer up to 250 MW of hydrogen-fueled electricity in a PJM auction, as announced in March. 

The PJM Interconnection coordinates the movement of wholesale electricity for 67 million people across 13 U.S. states and D.C. The auction comes amid surging demand for electricity, driven by data centre needs amid the AI boom. 

However promising as the hydrogen-based electricity is, Plug Power faces various challenges in bringing its plan to fruition, key among them being execution risk, as pointed out by Capital.com. 

Another factor that could hinder Plug Power’s promising plans is the rising cost of energy and interest rate decisions.

Analysts are predicting that US interest rates will likely not be lowered further this year, which, coupled with rising energy prices, creates a major macroeconomic challenge for Plug Power. 

Electricity prices remain high, rising by 33% between 2019 and 2025. This affects Plug Power’s overall cost of production as it relies on low-cost electric energy to generate green hydrogen.

The Federal Reserve reviews interest rates every month and decides whether or not to lower the rate, hike it, or keep it unchanged. After announcing three major rate cuts between September and December, the Federal Reserve has kept the Federal Funds Interest Rate unchanged since the start of the year.

If interest rates remain high, this hurts Plug Power’s capital-intensive business model, as it makes borrowing more expensive. 

However, with Kevin Warsh taking over from Jerome Powell on the Federal Reserve’s hot seat, there is the likelihood that he would be more inclined to cut rates amid rising inflation.

These factors will play a crucial part in Plu Power’s outlook. However, for the short-term, investors can look into its most recent quarterly results, which also saw the gross margin improve to -13%, up from -55% in the prior year, helped by the massive revenue beat.

Earnings per share of $-0.08 slightly edged the analyst forecasts of $-0.09. The company’s cash position of $802 million, comprised of both restricted and unrestricted, will help cushion against unfavorable interest rates by limiting borrowing needs.

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