Barclays: Bloom Energy demand signals strengthen, prompting upgrade despite lower price target

Why are customer prepayments a demand signal?

Bloom Energy's customer prepayment balance rose from $78 million at the end of 2025 to $661 million at the end of the third quarter of 2026, including an increase of approximately $300 million from the previous quarter. The relevant prepayments are removed from the balance when deliveries are made and revenue is recognized, so the net increase may be lower than the prepayments actually received during the quarter.
Barclays estimates that customers typically prepay about 10% of contract value. On that basis, the $300 million net increase corresponds to approximately $3 billion in contract value. However, some of the increase may come from milestone payments on existing contracts, so this calculation is not equivalent to the value of new orders.
The bank believes customers increasingly value rapid access to electricity and that Bloom's offering has a speed advantage, strengthening the company's bargaining power and making prepayments a more useful indicator.

Based on third-quarter capital spending of approximately $150 million, Barclays estimates that the company added about 1 gigawatt of annual capacity during the quarter, bringing existing capacity to approximately 2.5 gigawatts. This estimate is based on historical capacity expansion costs.
The company also signed leases that roughly double the area of its manufacturing facilities, about a year earlier than Barclays expected, and began preparing for capacity exceeding 5 gigawatts. Together with the growth in prepayments, these actions reinforced the bank's assessment of future demand.
As of the third quarter of 2026, the company disclosed approximately $5.8 billion in long-term supply commitments, compared with only $16.4 million disclosed in the second quarter. The new commitments include minimum purchase volumes, non-cancelable orders and some take-or-pay terms, with approximately $2.6 billion due in 2027.

Before recognizing revenue, the company must fund inventory, supplier prepayments, contract assets and capacity. Increases in supplier prepayments and contract assets were already among the main pressures that pushed operating cash flow negative in the third quarter of 2026.
Barclays forecasts free cash flow of negative $347 million and negative $70 million in 2026 and 2027, respectively, with the 2027 forecast below market expectations. Its model also includes approximately $400 million of investment in a second Fremont factory.

Customer consideration arising from warrants and other instruments Bloom issued to Oracle will reduce revenue as the related equipment is delivered. As of the third quarter of 2026, approximately $307 million of the approximately $323.9 million in consideration remained to be recognized against future sales; this will reduce reported revenue and gross profit.
Barclays gives an example: assuming a selling price of $3000 per kilowatt, an original gross margin of 35%, and allocation of all remaining consideration to the identified deployment volume of 1.2 gigawatts, the reported selling price would fall to approximately $2744, with a reported gross margin of approximately 29% if costs remain unchanged. Some of the gross margin pressure therefore comes from the accounting recognition of customer consideration.

Barclays raised its revenue forecasts while lowering its 2027 gross margin assumption from 35.7% to 32.3%. The higher revenue forecast broadly offsets the effect of the lower gross margin assumption, and its 2027 adjusted EBITDA forecast edged up from $1.874 billion to $1.882 billion; its 2030 forecast rose from $5.2 billion to $6.5 billion.
The bank upgraded the stock from Equal Weight to Overweight but cut its price target from $316 to $289: it lowered the valuation basis from approximately 19 times to approximately 14 times forecast 2030 EBITDA to reflect more growth already incorporated in the forecasts and lower valuation multiples for comparable companies.