The Hydrogen Stock That Has Retail Traders Selling While Morgan Stanley Goes All In

Morgan Stanley upgrades ITM Power to Overweight with 170p target, betting on early profitability by FY2028, as retail investors sell after a 400% rally.

The disconnect between ITM Power's share price and what analysts think it's worth has rarely been wider. After a blistering rally that saw the stock surge roughly 400 percent over the past year to hit a multi-year high of 166.50 pence, retail investors have been rushing for the exits. ITM Power became the most-sold stock on AJ Bell's platform last week, outpacing heavyweights like Rolls-Royce and Shell.

By Monday, the shares had retreated to 143.30 pence, with around 13.2 million shares changing hands — a staggering 168 percent above the daily average. Yet in a move that defies the prevailing retail sentiment, Morgan Stanley has just delivered its most bullish call on the hydrogen specialist in years.

A Bet on Early Profitability

The US investment bank upgraded ITM Power to "Overweight" — its first positive rating on the stock since 2021 — and more than doubled its price target from 60 pence to 170 pence. The catalyst? Morgan Stanley believes the company could reach EBITDA breakeven as early as fiscal 2028, a full year ahead of market consensus.

The bank's revenue forecast for that year stands at £169 million, well above the consensus estimate of £109 million. Its bull case stretches to 300 pence per share, while the bear scenario sits at 50 pence. The key, according to Morgan Stanley, is securing roughly 200 megawatts of new orders — a target it considers achievable given the company's £215 million cash buffer and improving operational trajectory.

Three specific catalysts are on the horizon: the outcome of the UK's Hydrogen Allocation Round 2, a potential final investment decision on Uniper's 120-megawatt Humber project, and the pivotal FID for ITM's automated Chronos production line, expected in June 2026.

The Numbers Tell Two Stories

The company's financials are improving, but losses remain substantial. In the first half of fiscal 2026, ITM posted record revenue of £18 million. Management has lifted its full-year guidance to between £40 million and £43 million. The order book now stands at £152 million, with 71 percent of contracts considered profitable — a marked improvement from the loss-making legacy projects that had weighed on the business.

But the full-year results for the period ending April 2025 tell a different tale. The pre-tax loss widened to £45.4 million from £27.1 million the prior year. The company carries no debt, and its liquidity of roughly £198 million covers current cash burn about five times over.

A Split Analyst Consensus

Morgan Stanley's upgrade puts it sharply at odds with the rest of the Street. Berenberg maintains a buy rating but with a price target of just 110 pence. UBS stays at "Neutral" with a 60 pence target. The consensus across all analysts stands at 84.60 pence — roughly 45 percent below the current trading level of around 154.80 pence.

The valuation math is tough to ignore. ITM Power trades at roughly 38 times sales — a rich multiple for a hydrogen company whose path to profitability remains uncertain. The relative strength index hit 91.77 during the rally, a level that historically signals an impending consolidation. The stock now sits 117 percent above its 200-day moving average.

State Backing and the Chronos Pivot

Two structural factors underpin the bull case. First, the UK government's Great British Energy vehicle has invested £40 million directly in ITM, taking a 10.4 percent stake. The Department for Energy Security is contributing an additional £46.5 million grant. That money is earmarked for building a production line for Chronos, the company's next-generation electrolyser stack.

Second, the final investment decision on the Chronos facility in Sheffield is expected in June. The plant aims to reach one gigawatt of capacity by 2028, producing PEM electrolysers with double the power density at significantly lower costs. The price tag: £120 million. The government grant is awaiting clearance from the UK's Competition and Markets Authority, expected in June.

ITM is also deepening its partnership with Rheinmetall through the Giga-PtX project, which aims to produce synthetic fuels for NATO forces using hundreds of decentralized electrolyser units across Europe, each with up to 50 megawatts of capacity.

The June Crossroads

The coming months will test whether the operational improvements can justify the valuation. The Chronos grant decision and the final investment go-ahead will be pivotal. If they go through, Morgan Stanley's accelerated breakeven thesis gains credibility. If not, the stock's 400 percent run-up may look increasingly detached from reality.

For now, the market is betting on a hydrogen turnaround story that has left the analyst consensus in the dust — and the next few weeks will determine whether that bet pays off or whether the retail traders who sold into the rally had the right idea all along.