Why Bloom Energy Stock Sank Again Today

Key Points

• Bloom Energy signed a big deal with tech giant Oracle, and investors jumped into the stock.

• High short interest likely contributed to the stock's recent sharp rise.

• Wall Street thinks Bloom Energy stock jumped too far too fast.

• 10 stocks we like better than Bloom Energy ›

Bloom Energy (NYSE: BE) stock is coming back down to earth after more than tripling over the last three months. Today's drop comes as a Wall Street analyst suggested investors should lock in those recent gains.

After sinking 17% in early trading, Bloom shares remained down by 12.4% as of 10:50 a.m. ET.

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Image source: Bloom Energy.

Bloom Energy riding the AI wave

The remarkable rally in Bloom Energy shares was driven by speculation that Bloom's business could explode alongside the buildout of data centers to supply compute power for artificial intelligence (AI) applications. An announcement in late July that the maker of fuel cells for on-site power generation will be collaborating with tech giant Oracle juiced the stock surge.

The deal to power Oracle AI data centers is expected to begin in the coming months. It's not a speculative bet that something far into the future will come to fruition. But investors still may have pushed Bloom's stock too far, too fast.

A new downgrade by Jefferies (NYSE: JEF) helped push shares lower today, though. The Wall Street firm dropped its rating on Bloom stock to the equivalent of a sell from a hold, according to reports. At the same time, it raised its price target on Bloom stock from $24 to $31 per share.

The price target boost shows the firm is optimistic on the business but thinks the stock rose too much. That rise may have also come thanks to the high short interest in Bloom Energy shares. About 20% of its shares are sold short. It's likely many of those short-sellers covered positions as the stock skyrocketed, creating a short squeeze.

Long-term investors who don't want to deal with these sharp moves should just continue to monitor Bloom's underlying business. There could be a dramatic rise in revenue coming from data center business, and that would bode well for shares over the long run.

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Howard Smith has positions in Bloom Energy and has the following options: short October 2025 $60 calls on Bloom Energy. The Motley Fool has positions in and recommends Jefferies Financial Group and Oracle. The Motley Fool has a disclosure policy.