2023 was a very tough year for solar stocks overall. The Federal Reserve’s decision to hike interest rates several times made borrowing much more expensive, resulting in lower profitability for solar firms. Solar ETF performance was pretty dismal overall with some stunning losses.
2024 began with the expectation of a turnaround on hopes for interest rate cuts. Those cuts have yet to materialize but solar stocks are staging something of a comeback. That comeback has been catalyzed not by cuts but instead by narratives around clean electricity demand spikes due to artificial intelligence (AI).
Large AI hyperscalers run data centers that consume massive quantities of electricity. Those companies are looking to carbon-neutral electricity to power increasing electricity demands. Recent analyst suggestions that solar power may be the answer have reignited interest across the sector.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) stock was trading sideways this year up until the AI clean electricity narrative emerged. That suggestion sparked interest in the stock sending prices from $196 to $276 overnight.
As noted, AI hyperscalers like Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) are making substantial efforts to introduce carbon neutrality at the data center level.
Carbon emissions from those companies accelerated last year. Microsoft’s emissions increase 29% in 2023 relative to 2020 levels. Meanwhile, the company has pledged to be carbon neutral by 2030 creating a massive opportunity for companies like First Solar that have the capacity to serve solar energy data center scale demand.
The renewable opportunity extends far beyond America’s borders. In 2023, renewable capacity expanded by 50% globally. Solar power was the most important contributor to that growth. Photovoltaic cells accounted for three quarters of renewable energy capacity additions worldwide during the year. There are multiple reasons to be bullish on First Solar stock at the moment.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) stock has surged over the past month and a half. Although the stock is currently fully priced and then some there is reason to invest now.
NextEra Energy is a unique company in terms of its composition. The company operates two distinct business segments: one is the largest sun and solar renewable energy firm globally, the other is the largest publicly traded utility in the U.S.
So, the company is clearly positioned to take advantage of the AI data center carbon-neutral energy opportunity. It should be a big beneficiary of the rising demand for solar energy due to AI.
However, I also like the stock for its utility business and the dividend that the company pays. That dividend currently yields 2.6%. It should become increasingly attractive in anticipation of rate cuts later in the year. What I mean is that bond yields are currently high but will fall once the Federal Reserve enacts rate cuts. That should prompt a pivot back into utility stocks for their dividend yields.
Array Technologies (ARRY)
Array Technologies (NASDAQ:ARRY) stock should be improving significantly in the coming weeks and months.
The company reported earnings in the second week of May showing just how drastically the solar sector has declined. First quarter revenues were just above $153 million, down from nearly $377 million a year prior.
The gutting of demand turned the company from one that produced $17 million in net income a year ago to one that produced a net loss exceeding $11 million during the first quarter of this year.
In that report, Array Technologies noted it expects revenue generation to ramp up during the back half of 2024. I can only assume that the company made such projections on the expectation of rate cuts.
It is likely the company will exceed those former guidance projections now that the cat is out of the bag about AI-driven solar demand. Solar companies are going to rush to increase capacity meaning array technologies will have a golden opportunity to sell more of the ground-mounted tracking systems designed to maximize efficiency.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
