Why Is This Solar Stock Outshining Its Peers?

This leading solar stock has surged 32% YTD, outshining its competitors. Analysts expect even greater gains ahead due to the AI boom and a rising global solar market.

Today, we are covering a leading solar stock that has significantly outperformed its peers, rising 32% year-to-date as of July 24. Analysts expect further gains due to its potential benefits from the AI boom and a robust global solar market forecast.

Key Takeaways:

• This solar stock has far outperformed its peers in the year to date and over the past 12 months. Analysts generally expect further gains.

• The stock’s price jumped after it was identified as a potential beneficiary of the generative artificial intelligence boom.

• The global solar market is set for 6% CAGR into the next decade, though the US market could grow substantially faster.

1.    Why is First Solar Outperforming Its Peers?

First Solar [FSLR] is the world’s leading producer of thin-film solar panels, with approximately 45% of global market share.¹

According to First Solar, the advantages of thin film cadmium telluride (CdTe) technology include “lower cost, superior scalability, and a higher theoretical efficiency limit”.²

As of July 19, the First Solar share price had gained 26% year-to-date and 12% in the last 12 months.

These gains are noteworthy because they differentiate First Solar from many of its peers in renewables and solar energy. Over the last 12 months, the Invesco Solar ETF [TAN] and the Invesco Global Clean Energy ETF [PBD] fell 42% and 28.6% respectively.

First Solar’s share price movements follow a broadly similar pattern to those of both ETFs but diverge significantly on May 21 and 22.

Between close on May 20 and May 22, First Solar leapt up 28.2%; during the same period, PBD gained 1.9% and TAN gained 10.6%. Considering that PBD and TAN both hold First Solar — as of July 19, it is TAN’s second-largest holding — these movements will have been at least partly driven by the increase in First Solar’s share price.

So what happened?

One possible explanation is a note UBS analyst Jon Windham wrote to clients, in which he said that First Solar is “ideally situated” to benefit from the increased demand for electricity that artificial intelligence (AI) is generating, especially in the context of companies such as Amazon [AMZN], Microsoft [MSFT] and Alphabet [GOOGL] having committed to matching their electricity consumption with renewable power purchases.³

However, while AI is a factor behind the spike of interest in FSLR stock, it is not the only one. First Solar occupies a prominent position in the broader solar theme.

2.    While the Sun Shines

The global solar power market was estimated to be $253.7bn in 2023 and is projected to grow to $436.4bn by 2032, according to Fortune Business Insights.⁴ This represents a modest 6% CAGR over the forecast period.

However, First Solar arguably occupies a faster-growing segment of this market: according to Global Data, the US solar photovoltaic market is expected to grow at a CAGR of 15% between 2022 and 2035.⁵

North America accounted for 41.3% of the global market in 2023, according to Fortune Business Insights.

The post-Covid demand for clean energy has acted as a stimulus to the sector. Another global tailwind driving the theme is the ambitions of governments and enterprises alike to meet net-zero targets and transition away from fossil fuels. This, in turn, has led to government incentives such as the provisions contained in the Inflation Reduction Act (IRA) of 2022.⁶

This legislation, in particular, is viewed as having had a transformative impact on the solar power industry in the US. Wood Mackenzie and the Solar Energy Industries Association estimate that the IRA could drive a 48% increase in solar deployment levels over the next 10 years.⁷

However, the sector faces a number of headwinds. These include volatility in the supply of polysilicon, the key raw material for solar panels: having experienced a shortage during 2021 and 2022, polysilicon has been oversupplied during 2024.⁸

Additionally, elevated interest rates are a headwind for renewables such as solar, largely because these segments are highly dependent on investment. Elevated interest rates reduce the incentives to fund solar projects, hurting the competitiveness of renewable energy companies compared to their fossil fuel counterparts.⁹

3.    Is FSLR Solar-First?

OPTO’s proprietary ‘relevance score’ assesses a public company’s alignment with a primary investment theme; it does not measure the company or investment's strength.

The overall score is based on four key criteria.