Viability of Stem Stock Depends on the New Normal


Self-billed as the world leader in artificial-intelligence-enabled smart energy storage solutions, Stem (NYSE:STEM) stock on paper offers unparalleled relevance.

A concept photo of different energy storage systems.
Source: Shutterstock

From facilitating greater efficiencies to help meet the challenges regarding minimizing environmental impact to bolstering the rollout of electric vehicle infrastructures, you’d be hard-pressed to find a more high-potential investment than STEM stock.

As well, it’s worth pointing out that Stem entered the public market via a merger with special purpose acquisition company Star Peak Energy Transition Corp. SPACs – otherwise known as blank-check firms or shell companies – don’t have any business of their own. Instead, their job is to launch an initial public offering with the ultimate purpose of identifying a merger target.

Should the SPAC’s shareholders approve the business combination, the target entity becomes a publicly traded one, while the SPAC essentially dissolves to absorb the identity (and ticker symbol) of the target. It’s really a backdoor method of going public, which is why investments like STEM stock are referred to as reverse mergers.

Though SPACs have their advantages – namely, brining lesser-known companies to the public sphere – they have their drawbacks as well, one of them being vulnerability to shareholder dilution. SPACs have put up a mixed result this year, although STEM stock has performed quite well given the circumstances.

In addition, the underlying business attracts prospective buyers because of its relevance to new energy protocols. For instance, Stem’s Athena smart energy software carries significant potential because it leverages AI to optimize power distribution for its enterprise-level clients by automatically switching between battery storage power, onsite generation and grid power.

With the Biden administration pushing clean energy integration, we need the ability to maximize the efficiency of intermittent power (i.e., wind, solar) and grid-sourced power. But this tailwind may risk being negated to a degree by the ongoing pandemic.

Work from Home Might Drag Down STEM Stock

Over the trailing year and a half, some of the events that unfolded have been decidedly advantageous to STEM stock. Though cynical, the blackouts that occurred in high-profile regions in California in the summer of 2020 was a perfect marketing showpiece for Stem’s various business units.

It’s clear that we don’t just need renewable energy infrastructure. We also need a way to harness all the energy sources at our disposal in the most efficient manner possible. Again, that’s why STEM stock is fundamentally so pertinent to our modern lifestyle.

At the same time, other events may apply pressure on Stem. Primarily, the work-from-home initiative has been a boon for the planet, helping to cut down on congestion and the consumption of natural resources. However, the impact of the pandemic has basically done Stem’s job, theoretically leaving the company with less to do.

According to the International Energy Agency, the institution noted a sharp reduction in traffic levels across major cities during the lockdowns last year. Generally speaking, societies consumed fewer resources, resulting in organic efficiencies.

Further, the International Labour Organization estimates that before the global health crisis, an “estimated 8% of the global workforce was working exclusively or mainly from home.” But post-crisis, the institute in partnership with other scholars predicts that “around 20% of jobs globally could potentially be done from home. This ranges from around 10% in sub-Saharan Africa to more than 45% in the wealthiest European countries.”

Interestingly, the IEA concludes that over time, “a more significant shift to home working could also result in a reduction in demand for office space and energy for commercial buildings, and therefore a greater overall reduction in energy consumption and CO2 emissions.”

Before you buy STEM stock, you should first assess whether remote operation is a fad or here to stay.

Tech You Can Still Trust, But Be Careful

A few months ago in June, I stated that Stem’s technology is AI you can trust. If you’re curious, I still stand by that statement. There are many lofty goals about AI initiatives but with Stem, you’re dealing with something that’s very much workable within the capacities of AI-based solutions.

But at the same time, I can’t help but reiterate that if the broader work-from-home protocol becomes a thing, then there will be less need for large enterprise-level infrastructural investments. And if that’s the case, it certainly takes away from the bullish narrative of STEM stock.

Still, if you want my opinion, I don’t think telecommuting will be a permanent fixture in corporate America. Therefore, I think you can do well with STEM stock over the long run. Nevertheless, if I’m wrong about my opinion, you should reconsider Stem’s thesis.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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