Solar stocks have been relatively hard hit due to the ongoing quantitative tightening that is resulted from high inflation. While the sector has suffered as the economy tackles inflation, a silver lining appears to be emerging.
That silver lining comes in the form of artificial intelligence. AI seems to be the answer to every problem these days. AI is the answer to the sector’s current woes because it is driving demand for solar-generated energy.
Hyperscaler firms operating data centers are largely responsible for much of the increased demand for AI chips. Those same firms are consuming increasing amounts of energy in building out AI infrastructure. Meanwhile, those firms have also pledged greater environmental responsibility through reduced carbon footprints. You can see the problem: They’re consuming more energy because of AI but they need to figure out a way to consume less and keep their promise.
Solar energy has emerged as a viable solution. It is now expected that data centers and other energy-intensive AI applications will increasingly rely on solar power energy. That again made solar stocks a subsector to pay attention to.
Sunnova (NOVA)
Sunnova (NYSE:NOVA) is an excellent example of a stock that has faced a lot of trouble due to rate cuts but suddenly looks much stronger.
The company paid $371.94 million in interest expenses during 2023. The company paid slightly more than $107 million the year before that which was essentially on par with what the company had been paying for the past few years. It was a clear indication of just how drastically the rate hikes affect individual companies.
Losses increased dramatically and Sunnova suddenly became a much less desirable investment. However, at the same time, Sunnova didn’t suffer from a lack of demand in 2023. Quite the opposite was true. Revenues grew by more than 29%, reaching $720.65 million.
Now Sunnova is in a position to benefit from the AI opportunity. Furthermore, rate cuts are expected later in 2024. The combination of those factors makes it a stock to consider for investors interested in the narrative I’ve laid out.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) is the stock that has largely been shielded from recent turmoil affecting the solar industry. Favorable government policies have protected solar energy producers at the utility-scale. Government subsidies have certainly favored First Solar in that regard. Furthermore, the company continues to benefit from government protections that shield domestic producers from Chinese competitors.
That isn’t to say that First Solar hasn’t suffered over the last year. The company had been flat to down over the past 12 months until this idea of AI benefiting the solar industry began to emerge. It was roughly 5 weeks ago that the notion of rising solar power demand related to data centers began to emerge at large.
Analysts suddenly dubbed First Solar an AI play citing carbon neutrality pledges from hyperscalers including Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOG,GOOGL) among others. Microsoft’s carbon emissions were 29% higher in 2023 than they were in 2020. That increase was primarily attributable to data center activity related to the training of AI models.
Array Technologies (ARRY)
Array Technologies (NASDAQ:ARRY) released its first-quarter earnings report on May 9. That was a few weeks before the notion of AI benefiting solar stocks had emerged.
As noted in this article, It’s a catalyst that promises to send solar stocks much higher in 2024. Interestingly, in that earnings report, Array Technologies noted that its revenue guidance is loaded toward the back half of 2024. It makes me wonder if Array Technologies was already seeing some indication at that point of increasing demand.
The company could use it because although the $153 million in revenues the company recorded in the first quarter was ahead of guidance, it was far less than the $375 million in sales the company recorded a year earlier.
The company also booked $1.8 billion of new business over the past four quarters bringing its total backlog to $2.1 billion. I believe the ground-mounted tracking systems that Array Technologies sells will be in high demand as companies scramble to build more PV installations to satisfy the increasing solar demand brought on by AI.
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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
