Hello, Reader.

“If you build it, they will come.”

This iconic line from the 1989 movie Field of Dreams describes the approximate strategy of many companies operating in the emerging green hydrogen industry.

Like Kevin Costner’s character building a baseball diamond in his cornfield on nothing more than a whisper of hope, hydrogen companies are constructing an industry believing demand will materialize once infrastructure is in place.

The green hydrogen sector, in aggregate, is a classic example of this “Field of Dreams” investment proposition. It’s a speculative venture, with companies currently operating at a loss – a fact that has caused hydrogen stocks to struggle.

However, this isn’t unexpected. Near-term profitability has never been part of the investment thesis for buying these stocks. Instead, they represent a long-term bet on the future of clean energy.

And I continue to believe in the success of that long-term bet… and in the success of the green hydrogen sector. In fact, artificial intelligence is already turning the tide in the hydrogen sector, as I mentioned in a recent Smart Money.

In today’s Smart Money, though, I want to explore exactly why the hydrogen industry’s march toward widespread adoption has been slow… but why it remains a promising investment opportunity, nonetheless. Then, I’ll share the best place to access this opportunity.  

The Slow Crawl

Although a second wind may be coming for the hydrogen sector… it is true that every important aspect of the bullish case for green hydrogen stocks has slowed to a crawl.

Government grants and loans are still flowing into the sector… one trickle at a time. Private sector capital is also continuing to invest in the hydrogen industry, slowly. Similarly, green hydrogen companies are continuing to gain purchase orders and win construction contracts, but at a lilting pace.

Slow is costly…  and enormously challenging for most of the early-stage companies that operate in this industry. So, although the investment thesis has not changed, it is playing out in slow motion.

Here’s why…

Converting existing infrastructure, systems, and industrial processes from legacy energy sources like fossil fuels to hydrogen is monumental. As such, this undertaking is similar to massive infrastructure projects from the past, like building railroads, digging canals, stringing telephone lines, building highways, erecting radio antenna, and, more recently, blanketing the landscape with electric vehicle (EV) charging stations.

In fact, the early EV manufacturers lost billions of dollars over several years, despite receiving massive government subsidies along the way… and many of them are still losing money.

That’s because the EV adoption rate could not increase significantly until a viable, large-scale charging network came into being. The dearth of charging stations rendered EVs impractical for most would-be buyers. And because the adoption rate did not accelerate quickly, companies like Tesla Inc. (TSLA) could not achieve sufficient economies of scale to slash production costs to competitive levels.

Because of chicken-and-egg dynamics like these, massive infrastructure transformations create massive financial challenges for the companies that hope to profit from them. They claim many victims before finally crowning a few victors.

In order for prosperity to flow, these transformations require both ubiquity and economies of scale. The slower the industry’s growth proceeds, the more daunting the task to become profitable.

The Path to Profitability

Today, the green hydrogen industry finds itself in a situation that is even more challenging than what the early EV manufacturers faced. Very little of the infrastructure that will enable the hydrogen industry to thrive is in existence yet.

Instead, the industry must build everything from scratch. However, hope is not lost.

Even countries in Europe are helping the hydrogen sector along. Germany, Italy, Portugal, Spain, and the Netherlands have committed more than 44 billion euros to advance hydrogen projects. Additionally, in February of this year, the European Union (EU) approved 6.9 billion euros in state support for 33 projects along the hydrogen value chain.

These ambitious plans are laying the groundwork for robust infrastructure.

Beyond government initiatives like the EU’s REPowerEU plan, private companies are also pouring billions into the sector – led by European blue chips like TotalEnergies SE (TTE), L’Air Liquide S.A. (AIQUY), Siemens Energy AG (SMNEY), Equinor ASA (EQNR), and Linde plc (LIN).

I recognized Europe’s role in the hydrogen industry’s recovery back in 2023. That’s when I recommended buying shares of two European green hydrogen companies in myelite-level service, The Speculator.

So, green hydrogen continues its steady crawl toward becoming a viable alternative energy source, especially with AI on its side. The hydrogen industry is building capacity across every facet of the hydrogen supply chain, while also building pieces of the requisite infrastructure as quickly as it can.

But clearly, navigating these speculative investments like these requires patience and insight.

To learn about my recommended stocks and how global trends are shaping the green hydrogen sector, join me at The Speculator.

Regards,

Eric Fry