STEM Stock Offers a Triple Play on Clean Energy, Storage and AI

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Clean energy and software firm Stem (NYSE:STEM) bottomed at below $20 in the last month. Since that time, investors accumulated shares steadily. STEM stock posted a steady stream of corporate news updates. Are those eventful enough to justify buying the stock after it already rallied?

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On June 15, Steam and CleanCapital announced a memorandum of understanding for financing. Stem, which describes itself as a leader in artificial intelligence-driven clean energy storage services, will provide its expertise to CleanCapital. This includes storage hardware and Athena smart energy software.

CleanCapital, a leading clean energy investment platform, received $300 million in investment from Manulife Investment Management in April. The partnership will target projects having up to 30 megawatts in the United States. This announcement is just the start for Stem. Expect the company to announce more agreements with various energy services firms. As its customer grace expands, investors may forecast Stem’s revenue potential in the clean energy storage and management space.

On June 10, Stem announced an agreement with Altus Power America. Altus is a clean electrification company. The firm has renewable energy assets mainly in Massachusetts and throughout the country. Altus will use Stem’s smart energy services to manage its solar storage facility. In the second quarter, it will use Stem’s services for a 2 megawatt-hours (MWh) energy storage system. Stem’s Athena will automate demand response solutions. So, during peak demand times, it will manage the delivery of clean energy.

The additional energy storage in the DC-coupled solar system will reduce energy lost within solar inverters. The press release yet again explains what Stem is doing that no one else can provide.

Limited Opportunity Here on STEM Stock

After STEM shares surged, investors who missed the rally may have limited upside opportunity from here. Goldman Sachs set a $30 price target a month ago. Unless more analysts offer a “buy” rating with higher price targets, the stock may have trouble rising from here. Still, Stem provides value for customers by digitally interconnecting energy assets for redistribution. Its solutions help the environment and maximize the use of clean energy in the best way possible.

In early June, clean energy stocks like Clean Energy Fuels (NASDAQ:CLNE) and Blink Charging (NASDAQ:BLNK) surged. Electric vehicle stocks like XPeng (NASDAQ:XPEV) and Tesla (NASDAQ:TSLA) also joined the rally. Stem shares also joined the bullish buying. Cautious investors will look at buying optimism differently. Positive momentum often comes in phases. Once markets lose interest in the sector and take profits, stocks in this space may slump next.

To sustain its momentum, Stem will probably need to keep posting collaborations, new project initiatives, and financing deals. For example, it started June with a collaboration announcement with Ameresco. Stem said that it will provide its services to Ameresco. The leading cleantech integrator and renewable energy asset developer will work with Stem on a battery storage project with Holy Cross Energy, a Colorado electric cooperative.

Stem shares will provide system design support while Ameresco will take care of the campus facilities. Ameresco will also simultaneously assist HCE in a 100×300 goal. That is, sourcing all energy with renewable resources by 2030.

Valuation Raises Eyebrows

When the company reports quarterly results, the weak revenues may scare already cautious investors. Stem is in the early phases of ramping up revenues. It does not have a big customer base yet. So, bearish investors will scrutinize its multi-billion market capitalization. Despite the risks, shareholders need not worry. Post-SPAC companies like electric component supplier Ouster (NYSE:OUST) posted expectedly poor revenue in the last quarter. The stock sold off sharply for a few weeks. From there, the stock rebounded as investors flocked to autonomous driving solution companies.

Stem is a promising company in a dual industry. Software and clean energy are budding fields that markets will gladly pay a premium on. Investors who do not want to miss out on Stem’s strong growth ahead will have to take the valuation risks. So long as the market does not face a correction, Stem shares should continue to trend higher.

On the date of publication, Chris Lau 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 InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.