Back to top

Image: Bigstock

Solar Shines: 3 Bullish Catalysts Suggest Further Upside

Read MoreHide Full Article

Solar Stocks Shine: Is the Rally for Real?

Slowing demand, a “hawkish” Federal Reserve, and Chinese competition have been bearish catalysts for the solar industry. Over the past year, the Invesco Solar ETF ((TAN - Free Report) ), a proxy for the solar industry, is down more than 30%. However, last week, TAN bullishly reclaimed its 200-day moving average (a long-term trend filter) for the first time in more than a year.

Zacks Investment Research
Image Source: Zacks Investment Research

Though solar stocks were beaten down before the recent rally, the fundamentals and bullish catalysts surrounding the industry suggest that this is more than just a “dead cat bounce.” Below are three reasons to be bullish on the solar industry over the next 2-3 years:

Data Centers + Clean Energy

Artificial Intelligence (AI) and Large Language Models (LLMs) like OpenAI and Microsoft’s ((MSFT - Free Report) ) ChatGPT, and Alphabet’s ((GOOGL - Free Report) ) “Gemini”require large data centers to “train” these models. Unfortunately, data centers require vast amounts of power consumption. As tech giants race for AI supremacy, Newmark predicts that U.S. data center power consumption will double by 2030.

While power needs will increase dramatically, world governments and many citizens remain concerned about climate change and want to focus on a clean energy future. Higher, clean energy needs leave only two games in town – nuclear and solar. Though nuclear is a potential solution for the vast energy needs, solar is far easier to implement on a wide scale. Leading solar manufacturer First Solar ((FSLR - Free Report) ) is up more than 50% this month after a Goldman Sachs ((GS - Free Report) ) research report says it sees upside in the stock as “demand strengthens on data center surge.” Meanwhile, companies like Nextracker ((NXT - Free Report) ), which makes solar projects more energy efficient, are rallying in sympathy.

Biden Administration Cracks Down on China

The Biden Administration is taking action to bolster the domestic solar industry. According to the White House website; “The tariff rate on solar cells (whether or not assembled into modules) will increase from 25% to 50% in 2024. The tariff increase will protect against China’s policy-driven overcapacity that depresses prices and inhibits the development of solar capacity outside of China.”

The Biden administration’s crackdown on low-cost Chinese solar providers is a significant bull catalyst for U.S. solar manufacturers.

Interest Rate Cuts

Higher interest rates have been bearish for the solar industry because higher borrowing costs have made it more expensive for companies to finance solar projects. However, with the market now pricing in multiple rate cuts for 2024, its hard not to be bullish on solar names such as Enphase Energy ((ENPH - Free Report) ).

Bottom Line

Solar stocks have rallied recently, but the rally is more than just a “dead cat” bounce. Data center demand, a crackdown on Chinese solar, and interest rate cuts all bode well for solar in 2024.

Published in