Morgan Stanley slashes through the hype and picks 2 'green hydrogen' stocks

Published Fri, Mar 5 20211:27 AM ESTUpdated Tue, Mar 9 20219:29 AM EST

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Wall Street bank Morgan Stanley has picked two so-called "green hydrogen" stocks that it says can beat the hype surrounding the nascent technology. Green hydrogen has grabbed investors' attention lately as analysts see it as having massive potential amid the transition toward net-zero carbon emissions. But Morgan Stanley warned that they may be over-hyped, in a research note published Wednesday. Hype plus a frothy environment , where investors pay over the odds and ignore fundamentals, is risky when investing in hydrogen right now, the bank said. With this in mind it picked two stocks with longer-term potential. Morgan Stanley's picks were two equipment makers: Siemens Energy , which produces proton exchange membrane (PEM) electrolyzers and transport company Alstom , which is making hydrogen-powered trains. PEM electrolysis is used to make hydrogen that powers fuel cells in vehicles, while hydrogen trains are already in commercial use. "This abundant molecule will increasingly replace carbon as the dominant energy carrier on the planet," the bank's analysts said. "Like selling picks and shovels in the California gold rush, we look to capital equipment companies to supply tools that facilitate this transition," the analysts said of the move to a low-carbon future. Siemens Energy is a spin-off from Siemens that was listed on the stock market last year . Morgan Stanley said it is "uniquely placed" for the new energy transition and said its PEM technology is already being scaled. It also liked its significant investment in research and development, and said the stock has an upside potential of more than 30%. Meanwhile, European rail firm Alstom is "the only rail company to have hydrogen-powered trains already in use" — in September it ran a trial in Austria , with the train emitting "only steam and water" according to the transport company. Alstom has also won contracts in Germany and Italy for a fleet of hydrogen trains and has passed trials in the Netherlands. Morgan Stanley said its recent acquisition of Bombardier Transportation is set to create a business with a revenue of around 16 billion euros ($19.26 billion), and said it sees a potential upside in its stock of more than 40%. While hydrogen has been used industrially "for decades," the market for green hydrogen is set to grow eight times by volume over the next 30 years, according to Morgan Stanley. The bank's analysts said that while they are "major fans of technology disruption," they're not keen on hype. "We don't like 'hype cycles' very much — particularly when they coincide with frothy stock market conditions. Hydrogen is clearly in danger of falling into this category," they wrote. And while the bank said it and most other commentators are still "finding their feet" with their comprehension of the new technology, its analysis is based on long-term growth factors. "What we have done in this report is take two specific Capital Equipment markets — PEM Electrolyzers and Hydrogen Trains — and make long-range forecasts about compound growth, relative size, market share and other variables that we do understand. We are trying to be specific about a conceptual challenge," the research note stated. - CNBC's Sam Meredith and Anmar Frangoul contributed to this report

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Wall Street bank Morgan Stanley has picked two so-called "green hydrogen" stocks that it says can beat the hype surrounding the nascent technology.

Green hydrogen has grabbed investors' attention lately as analysts see it as having massive potential amid the transition toward net-zero carbon emissions. But Morgan Stanley warned that they may be over-hyped, in a research note published Wednesday.

Hype plus a frothy environment, where investors pay over the odds and ignore fundamentals, is risky when investing in hydrogen right now, the bank said. With this in mind it picked two stocks with longer-term potential.