This Utility-Scale Solar Name Will Be a Surprise Winner in 2025
With advocacy from Elon Musk and a boost from Donald Trump, a major domestic solar panel firm should perform strongly this year.
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First Solar FSLR, the largest domestic solar panel manufacturer for utility-scale projects, sits at the forefront of robust growth trends of electrification, clean energy and battery storage. Impending protectionist policies that favor domestic manufacturing further serve as a formidable tailwind. As these trends play out, FSLR will be recognized as a vital cog in the electrification build-out and should perform strongly in 2025.
The reality of solar is that the green option for energy has converged to be the most economical option as solar has become the cheapest form of mass energy production. As battery storage capacity increases, utility companies can harness the energy generated by solar power around the clock. In California, solar power increased by 31% in 2024, allowing renewables to entirely power the grid during peak electric usage in the summer months.
The valuation of FSLR is modest at a 15 price-to-earning ratio (P/E) with a forward P/E of under 10. Wall Street expectations of over $20 per share in EPS in 2025, up 40%, may be a tad aggressive due to the lumpiness of earnings, but nonetheless, they point to a sturdy growth trend from new manufacturing facilities and stable ASPs.
The stock has had a significant pullback post-election due to political uncertainty about Trump’s embrace of fossil fuels, yet he is unlikely to diminish solar’s growth. Although parts of the Inflation Reduction Act — which provides incentives for clean energy — will be gutted, benefits for domestic solar should stay intact.
Cuts in domestic solar manufacturing and cuts in incentives for utility projects would be highly unpopular since they primarily benefit Republican districts — First Solar is currently building and expanding plants in Alabama and Louisiana. Additionally, Elon Musk has advocated for solar, believing it will be the primary source of power in the future. Stiff tariffs from protectionist policies favoring domestic solar production will likely be in force throughout Trump’s administration — a nice tailwind for FSLR.
In fact, First Solar was one of the best-performing stocks in Trump’s first year in office in 2017, gaining 110%. Granted, the stock was deeply depressed with the solar sector out of favor entering Trump’s first term.
With utilities flush with inexorable demand growth, investments in solar production will continue unabated. Reductions in regulations and proposals to increase access to federal lands could allow utilities to roll out solar projects more expeditiously. Various project delays dented FSLR’s earnings in 2024 but solar installations can see a pull forward in 2025 due to out year policy uncertainty.
Although FSLR is down over 30% off the highs, analysts have widely embraced the stock with the average target at $270, 40% above current levels. While sentiment for the sector has unraveled — especially with European order slowdowns, declines in rooftop solar incentives in California, and China overcapacity and dumping allegations — First Solar’s bookings and pricing have remained solid. Their order backlog sits at 73.3 gigawatts, valued at $21.7 billion, with orders stretching to 2030.
First Solar is an innovator in improving upon thin film photovoltaic technology, with a strong patent portfolio. Its recently-enforced intellectual property claims have had legal success in China, potentially resulting in royalty payments from other solar cell manufacturers.
The electrification of transportation and data center buildout is a game changer and supercharging electricity demand growth. A data center with a 500,000-processor cluster needs at least 750 megawatts, enough to power half a million homes. Plans for one million processor clusters are on the drawing board which will require gigawatts of power. While nuclear power and natural gas have garnered much attention, solar is still a key component in the mix, especially when most hyperscalers have pledged to be carbon neutral.
A good investment often starts when sentiment is poor and expectations are low. Much like President Trump’s first term, investors in solar today are demoralized and concerned about clean energy incentives. FSLR’s valuation with a forward P/E under 10 demonstrates the low expectations for sustainable growth. Yet, the multi-year robust load growth trajectory will help make FSLR a surprise winner in 2025.
At the time of publication, Ginesin was long FSLR.
