How The Inflation Reduction Act, European Gas Crisis Are Helping Solar Stocks

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Our theme of Solar stocks – which includes solar panel manufacturers, systems installers, and component suppliers – has rallied by about 24% year-to-date, faring better than the broader S&P 500 which remains down by about 18% over the same period. While growth stocks, in general, have been hurt by the Fed’s aggressive rate hikes and a broader market pivot to value names, solar stocks are outperforming considerably for a couple of reasons. Firstly, the Inflation Reduction Act which carries about $370 billion in subsidies and credits for clean energy investment in the United States, was signed into law by President Biden in mid-August. This is the largest-ever investment to fight climate change and this could result in as much as $1.2 trillion in private investments into the renewables space by 2035, according to Wood Mackenzie. Secondly, oil and gas prices have surged following Russia’s invasion of Ukraine. There are also increasing uncertainties regarding supplies of natural gas in Europe after Russia has cut off supplies, noting that it would not resume until Western sanctions against the country are lifted.  The current situation is serving as a wake-up call for all energy-importing countries hastening the process of shifting to renewable energy and alternative energy sources such as solar. Moreover, second-quarter earnings from key solar players such as Enphase Energy (NASDAQ:ENPH), First Solar, and SunPower were also stronger than expected and this has also helped the sector.

Within our theme, Enphase Energy, a company that sells solar micro-inverters, energy generation monitoring software, and battery energy storage products, has been the best performer, with its stock gaining 51% year-to-date. On the other side, NextEra Energy, one of the largest U.S. utilities by market cap and the single largest owner of solar generation capacity outside China, has been the weakest performer with its stock down by about 6% year-to-date.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Sep 2022
MTD [1]
YTD [1]
Total [2]
 SPWR Return -5% 9% 319%
 S&P 500 Return -1% -18% 75%
 Trefis Multi-Strategy Portfolio -2% -17% 228%
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[1] Month-to-date and year-to-date as of 9/6/2022
[2] Cumulative total returns since the end of 2016

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