After a 35% Surge, Can First Solar Keep Shining?

First Solar (NASDAQ: FSLR), a leading U.S.-based solar module manufacturer, has seen its stock rise nearly 35% year-to-date, far outpacing the broader S&P 500. What’s driving this rally? It’s a combination of policy support, investor optimism, and momentum in clean energy.

First, the U.S. clean energy agenda provides a strong tailwind for solar producers, with generous tax incentives and domestic manufacturing subsidies benefiting companies with U.S.-based operations. Second, First Solar’s expanding U.S. capacity gives it a competitive edge as the nation aims to reduce reliance on imported solar panels. Third, First Solar’s investment in domestic manufacturing and proprietary technology sets it apart. Using cadmium telluride thin-film modules and its advanced CURE process within a fully integrated U.S. supply chain, the company is well-positioned to meet rising domestic electricity demand.. Also, see Buy or Fear First Solar Stock?

However, here’s the stark reality – the stock is priced for perfection after a massive run. While fundamentals look solid, expectations have surged to a level where any shortfall could trigger a sharp downside. We discuss more below.

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The Fundamental Problem

We concur that First Solar has a compelling long-term growth story, and we’ve discussed the upside potential ourselves. But have you considered the downside risks?

Think about it logically: markets don’t move in one direction forever, and sentiment in solar stocks can shift quickly. Despite robust profits today, First Solar’s cash flow conversion remains weak, its margins face tariff-related pressure, and its valuation already reflects optimistic assumptions about growth and policy stability.

When markets turn risk-averse or when results disappoint, high-expectation stocks like FSLR don’t just dip; they correct sharply. This is not theoretical and it’s happened before.

Historical Precedent: The 2022 Shock

Let’s revisit 2022, when soaring inflation and rising interest rates hit growth stocks hard. The S&P 500 dropped 25%, but First Solar? It fell 49%, from $121 to $61 — nearly double the market’s decline.

Though the stock recovered quickly as clean-energy optimism returned, this underscores a key point: when sentiment sours, FSLR’s downside magnifies. Investors should remember that volatility cuts both ways, and after a 40% year-to-date gain, history suggests the risk of a reversal is real.

The Risk Factors That Could Hurt FSLR

1. Policy and Tariff Uncertainty:
   First Solar’s U.S. advantage depends largely on government incentives and import tariffs. Any rollback of subsidies or changes in trade policy could significantly affect profitability and project demand. With nearly 93% of its revenue coming from U.S.-based projects, the company’s heavy domestic reliance makes it particularly exposed to shifts in federal energy policy.

2. Execution Risk on Expansion:
   The company’s rapid capacity build-out in Ohio and Alabama requires significant capital. Delays, cost overruns, or slower-than-expected ramp-ups could squeeze margins and dent investor confidence.

3. Valuation Risk:
   Trading at 6.2x sales and 20x earnings, FSLR’s valuation assumes steady growth and policy tailwinds. Any moderation in demand or margin compression could lead to a sharp de-rating.

4. Weak Cash Flow Conversion:
   Despite strong accounting profits, FSLR’s operating cash flow margin is just 8%, far below the S&P 500 average of 20%. This suggests weaker cash efficiency, leaving less cushion if conditions tighten.

5. Market Sentiment Shifts:
   Clean-energy stocks are highly momentum-driven. When market risk appetite fades, especially if bond yields rise, solar names like FSLR tend to sell off first.

What’s the Real Downside Risk?

So, what’s the realistic downside risk for FSLR stock at its current price of around $240?
If history is any guide, the downside could be back toward the $150–$160 range, representing a 35%–40% correction, roughly in line with its past declines during market pullbacks.

This isn’t fearmongering—it’s simply an observation of historical precedent. First Solar delivered $4.3 billion in revenue over the last twelve months, up about 19% year-over-year, and generated roughly $1.4 billion in operating income, reflecting a robust 32% margin. These are impressive results that highlight the company’s strong execution and profitability. Yet, even with such solid fundamentals, solar remains a cyclical, sentiment-driven sector, one where earnings season can quickly shift the narrative.

The Bottom Line

The goal of this analysis is to highlight the genuine downside risk associated with FSLR stock. It may or may not materialize—but it’s significant.

When optimism fades or earnings disappoint, even strong companies can see steep corrections. Investors buying FSLR today are not purchasing a discounted value stock, but they’re betting that policy tailwinds, growth momentum, and execution will all align perfectly.

If any one of those falters, the downside could be swift and severe. Ultimately, it depends on whether you can stomach that level of volatility while holding a stock that’s already had an exceptional run.

If this level of risk makes you uneasy, you might want to consider the Trefis Reinforced Value (RV) Portfolio, which has surpassed its all-cap benchmark (a mix of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver solid returns for investors. What accounts for this? The quarterly  rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offers a flexible strategy to capitalize on favorable market conditions while managing losses when markets decline, as explained in RV Portfolio performance metrics.

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