Solar Stocks Surge on Renewables and AI Momentum
In an impressive display of financial momentum, the solar energy sector has recently experienced a significant surge, particularly evident in the performance of several solar stocks on the US market. This marked increase follows a notable rally in China's A-share photovoltaic (PV) sector, sparking a wave of optimism among investors. As the world shifts towards renewable energy sources, several factors are converging to fuel this bullish sentiment, including broader energy transitions and the rising influence of artificial intelligence (AI) on the energy landscape.
On May 22, 2023, notable solar stocks such as First Solar (FSLR), SunPower (SPWR), and Sunnova Energy International (NOVA) experienced impressive gains, climbing 18.69%, 14.23%, and 7.6% respectively. Other key players in the industry also saw remarkable increases, such as Maxeon Solar Technologies with a 21.77% rise, and Array Technologies, which surged over 16.8%. The overall trend was mirrored in solar exchange-traded funds (ETFs), where funds like TAN recorded an 8.97% increase, further evidencing the strong investor interest.
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Amid this financial uptick, experts are delineating the underlying catalysts that are propelling the solar stocks skyward. According to Chen Dalong, a trader formerly with Fortress Investment Group who now runs his own quantitative fund, there’s a palpable sense of optimism permeating the solar and clean energy sectors. He elaborates that heightened attention on the power demands of AI data centers has directed investors' focus toward clean energy stocks as a niche market poised to benefit from the AI boom. This is especially relevant, he points out, because these clean energy stocks have yet to fully price in the potential impacts of AI developments, suggesting further room for growth.
First Solar stands out among its peers as the market favorite. On Tuesday, May 21, the stock surged more than 8% before receiving a rating upgrade from analysts later that day. Notably, UBS analysts Jon Windham and William Grippin elevated First Solar's target price to $270, projecting an increase in earnings from $7.74 to $36.74 per share by 2027. Windham stressed that the convergence of AI data centers’ power needs and the US’s protectionist policies could significantly bolster First Solar's market share.
The optimism surrounding First Solar falls within a broader positive sentiment directed towards the renewable energy sector, particularly solar. The recent Barron’s Roundtable included discussions highlighting various stocks anticipated to benefit from the renewable energy outlook, suggesting that the resurgence in these sectors is partly driven by the growing energy needs linked to developing AI technologies.
As the largest global manufacturer of photovoltaic solar panels, First Solar possesses advanced thin-film solar technology, offering a high-performance, low-carbon alternative to traditional crystalline silicon solar modules. While conventional crystalline silicon has its advantages, such as reduced manufacturing costs, it also has downsides, chiefly lower efficiency. Market analysts believe that First Solar’s technology is better suited for deployment in industrial utilities capable of powering AI data centers, positioning it as a critical player in the energy landscape.
In contrast, many of the rapidly climbing photovoltaic companies focus more on residential solar applications. This raises some questions among industry watchers regarding the reasons behind their significant stock price increases. Chen notes that companies like Sunnova Energy International have innovative offerings, like their "virtual power plant" product, which allows residential customers to sell stored power back to the grid during peak demand periods. He argues that while the precise reasons remain unclear, the collective capabilities of solar firms in enhancing solar energy systems—and their associated battery and monitoring technologies—provide indirect support to the US power grid, crucial for catering to emerging AI data centers.
SunPower has attracted attention as well, with market speculations suggesting that its rise is also influenced by its recent transformation into a popular retail investment concept. This revitalization follows the return of Roaring Kitty—an influential figure from the GameStop saga—who has rekindled interest among retail investors in stocks previously targeted by institutional short-sellers, with SunPower being among them. At one point, the short interest in SunPower was a staggering 64%, making it an attractive target for a short squeeze. Although the stock has seen a retreat, the prevailing optimism surrounding the solar sector may ignite another round of upward momentum in its stock prices.
Despite the evident enthusiasm, Chen advises caution moving forward. He emphasizes the importance of selecting stocks that truly stand to gain from advancements in AI. Looking ahead, he warns that the solar sector will not maintain the momentum witnessed on May 22 indefinitely. While First Solar may have currently accounted for various positive catalysts in its stock valuation—such as recent upgrades from institutional investors—Chen believes it retains significant growth potential. This is largely due to its status as one of the few profitable solar players in the US, paired with its stronger focus on industrial and utility sectors, presenting a more reliable growth trajectory compared to residential-centric solar providers. In a landscape where many American consumers are currently scaling back on solar adoption amid persistently high interest rates, this strategic positioning may give First Solar a competitive edge in the evolving energy market.