ITM Power’s Rally Hits a Crossroads as Grant Ruling and Index Flows Converge

ITM Power shares surge 164% in 3 months. Now awaits £46.5M UK grant decision and MSCI index inclusion on May 29. Short sellers retreat, but insider sales and retail selling raise caution.

ITM Power has raced ahead by 164% over the past three months, leading the hydrogen sector’s recovery and outpacing even its closest peers. But that stunning run now enters its most consequential week, with two events that could send the shares sharply higher or trigger a dramatic reversal. On 26 May the British government will decide on a £46.5 million grant for a new automated production line in Sheffield, and three days later the stock will be added to the MSCI United Kingdom Small Cap Index, forcing passive funds to buy.

The sector-wide rally has been broad but uneven. Ballard Power climbed 163% on the NASDAQ over the same period, Plug Power added 105%, while Norway’s NEL gained 70% — a strong showing in isolation but clearly lagging behind the leaders. ITM Power sits just ahead of Ballard, a marginal advantage that momentum investors have seized upon. On Friday 22 May, NEL shares rose nearly 15% to NOK 3.575 in Oslo, a sign that even the stragglers are catching tailwinds.

The real action, however, centres on ITM Power’s grant decision. The UK Department for Energy Security and Net Zero is expected to rule on a total package of up to £120 million for the Sheffield plant, with the state contributing £86.5 million — including £40 million from Great British Energy. The money is earmarked for the production of ITM’s next-generation Chronos electrolyser, which promises three times the output of the current model, 40% lower costs and half the footprint. Management plans to take a final investment decision immediately after the announcement and expects the line to be operational by 2028. Jefferies has warned that a negative outcome could trigger a share price decline of as much as 52%.

That downside risk sits uncomfortably against the backdrop of a stock that has already tripled. The MSCI inclusion, announced on 13 May and effective after the close on 29 May, will add a different kind of pressure — buying from index-tracking funds. With a market capitalisation of roughly £1.11 billion, ITM Power is large enough for that demand to be noticeable, and the move also raises its profile with international institutional investors who use MSCI as a screening tool.

Inside the company, the signals are mixed. Technology chief Simon Bourne sold most of his 1.3 million share options at an average price of 157.44 pence, citing tax liabilities, and now holds just under 656,000 shares. Chief executive Dennis Schulz, by contrast, has tied his own 1.3 million shares to the successful delivery of Chronos and the signing of profitable contracts. On the trading floor, retail investors have been net sellers: on a recent session the stock fell 7.4% to 143.30 pence on volume of 13.2 million shares, and on the AJ Bell platform ITM Power was the most sold name that day. Short sellers, meanwhile, have been retreating. Between 15 and 30 April, short positions dropped by 40.3%, the steepest reduction in that period.

Operationally, the company continues to improve. The adjusted EBITDA loss narrowed to £11.9 million in the first half, from £16.8 million a year earlier. Revenue guidance for fiscal 2026 was raised to between £40 million and £43 million, and the order book stands at £152 million, 71% of which is classified as profitable. Cash at year-end is expected to be between £210 million and £215 million, giving the group a cushion even if the grant falls through.

Analysts remain deeply divided. Jefferies lifted its price target to 200 pence, Morgan Stanley upgraded to Overweight with a 170 pence target — the first positive rating on a British hydrogen stock since 2021. Berenberg maintains a Buy but cut its target to 110 pence, while UBS sticks at Neutral with a fair value of 60 pence. The gap between the highest and lowest target is a chunky 140 pence, a spread that explains why investor sentiment has been so volatile.

Once the mechanical buying from the index recedes and the grant decision lands, the market will have to answer a single question: do the underlying numbers justify a rally of this magnitude, or has the stock already overshot its fundamentals?