FuelCell Energy (NASDAQ: FCEL) experienced a significant pre-market surge of 16% on Wednesday following the announcement of a strategic power supply agreement with Fit Energy USA. The deal, which could provide up to 380 megawatts (MW) of on-site clean baseload electricity for data centers, marks a major step in the company's push to expand its presence in the rapidly growing data center power market.
Under the terms of the agreement, FuelCell Energy will begin delivering an initial 30 MW phase of power this year, with an immediate deposit tied to this first block. The remaining capacity is structured in optional phases: 100 MW, 125 MW, and an additional 125 MW, which Fit Energy can choose to exercise as it develops new data center locations across the United States. The deal is structured around 2.5 MW carbonate fuel cell blocks, with project-level commissioning and long-term service agreements to be finalized as specific sites are selected.
Jason Few, President and CEO of FuelCell Energy, expressed enthusiasm about the partnership, stating that it validates the company's strategy to achieve 500 MW of capacity. Joel Leonoff, CEO of Fit Energy, described the agreement as a key step toward building the next generation of AI infrastructure, highlighting the critical need for reliable, around-the-clock power for data centers.
As part of the transaction, FuelCell Energy issued three batches of warrants to Fit Energy, covering up to 12 million shares at an exercise price of $26.44 per share. These warrants vest upon receipt of non-refundable deposits related to future project phases, and any unvested warrants will be canceled after 24 months. The warrants provide Fit Energy with the option to purchase shares at a fixed price, aligning long-term incentives with project milestones.
The market reacted positively to the news, with shares climbing 16% in pre-market trading, recovering from a 10.54% decline on Tuesday that had ended a five-day winning streak. The broader Nasdaq Composite index fell 2.21% on Tuesday, adding context to FuelCell Energy's volatile performance. The stock closed at $21.82 on Tuesday, and the pre-market jump suggests renewed investor confidence in the company's growth trajectory.
Despite the positive announcement, the company cautioned that much of the 380 MW capacity is not yet secured, as it depends on future optional phases and the completion of site selection, deposits, and service agreements. In its 8-K filing, FuelCell Energy warned that actual results could differ materially from projections due to execution risks, financing challenges, competitive pressures, and other uncertainties. This cautious language is standard for such agreements but underscores the speculative nature of the larger capacity figures.
The deal comes at a challenging time for FuelCell Energy, which reported a fiscal second-quarter net loss of $77.6 million on revenue of $35.6 million, a 5% decline year-over-year. The company's backlog fell approximately 9.9% to $1.14 billion, though its sales pipeline grew to 4 GW from the previous quarter. As of April 30, FuelCell Energy held $440.9 million in cash and restricted cash, and it raised additional capital through share sales: approximately 10.9 million shares in the quarter for net proceeds of $100.4 million, and another 4.1 million shares after the quarter ended for $52.9 million net.
The data center power market is becoming increasingly competitive, with FuelCell Energy's rival Bloom Energy also making significant strides. In April, Reuters reported that Bloom Energy signed a deal to supply Oracle with up to 2.8 GW of fuel cell capacity, a much larger publicly disclosed supply agreement by capacity. This highlights the growing demand for clean, on-site power solutions as AI and cloud computing drive exponential energy needs.
FuelCell Energy's agreement with Fit Energy represents a strategic move to capture a slice of this expanding market, but the company must navigate significant operational and financial hurdles to convert the optional phases into firm commitments. Investors will be watching closely for progress on site selection and deposit milestones in the coming months.
