Analysts Cite Momentum as Shares Hit Highest Level Since July 2024
Morgan Stanley analyst Andrew Percoco estimated earlier this week that Ford Energy could be worth $10 billion. (Ford Motor Co.)
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Ford Motor Co. became the latest old-economy manufacturing company to be swept up in the hype around artificial intelligence after the 122-year-old automaker’s pivot toward energy storage sent its stock surging.
The shares extended their biggest advance in six years, climbing about 21% in two days. They gained 6.7% May 14, to close at the highest level since July 2024, having turned positive for the year.
Investors have been eager to embrace companies that stand to benefit from power-hungry data centers and other infrastructure to support AI, turning their stocks into techlike growth plays.
Bulldozer maker Caterpillar Inc. is among storied industrial names to benefit from the boom, having surged 160% over the past 12 months, since its power generation equipment business was tied to the AI buildout. Sales to data centers have fueled a 240% rally in Vertiv Holdings Co. over the same period.
“It’s emblematic of an overheated thematic rally,” said Steve Sosnick, chief strategist at Interactive Brokers. “Might it be a good thing for Ford to sell batteries to AI centers? Absolutely.” Yet, the stock’s rally “seems more like a bout of momentum-driven speculation than a sober revaluation of its prospects,” he said.
Ford’s closest traditional peers haven’t seen the same rush. General Motors Co. stock has risen about 2.4% over the past two sessions, while Stellantis NV’s U.S.-listed shares have added 5.4%.
Ford is investing $2 billion to get into the energy storage business, which includes converting a factory in Kentucky from making batteries for electric vehicles to producing large energy cells for the storage business. U.S. demand for grid batteries is expected to double by 2030 to more than 100 gigawatt-hours, according to Bloomberg NEF.
CEO Jim Farley said May 14 that the automaker is already seeing strong demand for its energy storage batteries that will go into production late next year.
“We have seen tremendous interest from customers, and we’re actually in the contracting phase for our early capacity as we speak with several customers,” Farley told shareholders at the company’s virtual annual meeting.
“Battery energy storage systems have the potential to be a high growth, high margin, anti-cyclical market development for Ford,” Farley said. “We see a path to diversify our revenues at the company and de-risk the core automotive business.”
The comments came after Morgan Stanley analyst Andrew Percoco estimated earlier this week that Ford Energy could be worth $10 billion and said in a note that the carmaker could soon make a deal with hyperscalers.
The energy storage opportunity for Ford is “compelling,” with potential annual earnings of $300 million to $500 million before interest and taxes, Dan Levy, an analyst with Barclays, wrote in a note to investors May 14. But he cautioned that the automaker must still deliver on that promise, adding that Tesla Inc. remains the dominant player in this space.
Ivan Feinseth, chief investment officer at Tigress Financial Partners, said the hype may be short-lived. “Ford’s fundamental drive is still car sales.”
The speed of the rally has analysts cautioning that the hype is making non-tech companies susceptible to AI risks, including a slowdown in spending, while their core business is still driven by shifts in the economic cycle and consumer demand.
“When the market starts grasping for peripheral connections to tie assets to an overwhelming theme, you’re late in the investment cycle,” said Michael O’Rourke, chief market strategist at Jonestrading. “The winners have rallied so much that profit-taking investors look for companies with weaker catalysts as rotation targets to maintain exposure to the trend.”
That leaves Ford’s stock vulnerable to a quick reversal, Matt Maley, chief market strategist at Miller Tabak + Co., warned.
“Investors will want to be more careful about chasing it,” Maley said. “These meme-styled rallies usually see meme-styled pullbacks before long.”