Solar stocks rallied on Democratic victories, but policy risks still threaten the group
The Democrats’ sweep of the midterm elections sparked a huge move in solar stocks on Wednesday, but by Thursday many of the gains had vanished as the markets soured on the artificial intelligence trade. Investors assessing the situation need to know that policy risk remains the biggest swing factor for this volatile group. While the Trump administration has vowed to curtail new solar power projects and the 2025 tax law ended some clean energy tax credits , a Democratic Congress lowers the odds of the industry suffering from further hostility. Lawmakers can use oversight to push agencies toward faster project approvals. If permitting accelerates, more projects could move toward construction. Lenders would likely get more comfortable, which would make financing easier, and a developer’s backlog would be more likely to get built. The election also resulted in five governorships flipping to the Democrats in Texas, Georgia, Ohio, Iowa and Nevada, which could lend support on a local level for more solar procurement and siting. Notably, Texas has been the largest contributor to new U.S. solar capacity, according to William Blair. Ohio also ranks among the top solar states, it said. Solar policy risks Trump still holds his veto pen through January 2029. Democrats can block new damage, but they probably can’t restore the credits the tax law ended. The election stops the bleeding but doesn’t reopen the taps. The second wrinkle is data centers. If a Democratic Congress makes the data center buildout slower or costlier, some of that demand story will fade. AI power demand has been a big tailwind for every kind of generation. On Wednesday, AI data center stocks dipped even as renewables surged. Their slide continued on Thursday. Against this backdrop, three solar stocks stand out. First Solar FSLR YTD mountain First Solar stock performance year to date First Solar is the cleanest play. The company manufactures in the U.S., so it benefits most if policy favors domestic production. On Aug. 6, Trump announced Section 232 trade measures imposing minimum import prices on silicon-based solar products , which takes effect on Dec. 4. First Solar will particularly benefit from the shift. Its thin-film cadmium-telluride technology doesn’t rely on the silicon supply chain. On Thursday, William Blair upgraded First Solar to buy. Among other factors, the firm said a Democratic victory in Congress could make it more likely for the Bipartisan American Affordability and Jobs Act to pass, which would be favorable for First Solar. That proposal calls for expedited federal permitting of solar projects and expanded solar grid development. Despite the upgrade, First Solar shares were volatile on Thursday. Investors were concerned that construction for data centers might move overseas where First Solar is not nearly as strong. After Wednesday’s bump, First Solar shares were trading at only 10.8 times trailing 12-month earnings, according to FactSet, after having declined by more than a third since their June high of $320.95. The majority of analysts rate the stock a buy, according to LSEG. Goldman Sachs, which calls the risk/reward for the utility-scale solar favorable, is among them. Sunrun RUN YTD mountain Sunrun performance year to date Rooftop installer Sunrun shares bucked the downward trend on Thursday, supported by higher third-quarter earnings and revenue . Week to date, the stock has climbed about 29%. The company could have the most upside if lending conditions improve, but it’s also the most volatile. Goldman cites high interest rates and weak demand. U.S. residential installations were down 21% in the second quarter from the prior year. However, CEO Mary Powell said the third quarter “marked an important inflection point,” as installations grew 9% year-over-year. Should data center construction move overseas, GDP would slow and the case for lower interest rates improve. Separately, Wells Fargo’s view suggests a potential wildcard for the stock: Sunrun’s plan to tap homes for AI computing power , which could drive big gains if it materializes. As of Wednesday’s close, Sunrun shares were trading at less than 6x trailing earnings. Enphase Energy ENPH YTD mountain Enphase Energy performance year to date Inverter maker Enphase Energy supplies the electronics and batteries for rooftop solar systems, so it rides the same rates and financings cycle as Sunrun. It gains if lenders loosen up, and Goldman rates it a buy. The catch is the same weak residential demand. Enphase shares have gained 10% so far this week, despite shares tumbling more than 10% on Thursday. Year to date, the stock is down 12%. Next moves So was Wednesday’s action a short-term pop or a lasting benefit? Both, but they’re different things. The one-day jump is a repricing of risk, and it’s partly a sentiment trade that can fade. Goldman noted solar shares had badly lagged the market in recent months, so some of the move is relief off a low base. For example, the Invesco Solar ETF (TAN) gained almost 7% on Wednesday, but dove around 5% on Thursday. Year-to-date, it’s slid nearly 11%. What should last is a steadier footing, marked by fewer surprise rollbacks, better financing, and more believable backlogs. These benefits look likely to hold for a few years. A true step-up in incentives would change the narrative, but that might have to wait for a White House that’s friendlier to the industry — something that won’t happen until at least 2029. Until then, expect gridlock rather than boom. The new dawn promotes stabilization. Any gold rush will have to wait. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
