How to position in the U.S. solar sector under the alternating impacts of tariffs and policies? Goldman Sachs has the answer

According to the Zhitong Finance APP, Goldman Sachs released a research report stating that the solar industry is facing numerous challenges due to factors such as a weak start in the U.S. residential solar market, and uncertainties in the macroeconomic and policy environment. As a result, ahead of the first financial report release in 2025, the bank has lowered the earnings expectations and target prices for some companies in the solar and energy storage sectors. However, Goldman Sachs believes that individual stocks, including Array Technologies (ARRY.US) and Nextracker (NXT.US), still possess short-term investment appeal and has given them a "Buy" rating.

Goldman Sachs noted that over the past three months, the solar stocks it covers have averaged a 35% decline, significantly underperforming the Russell 2000 index (which fell by 10%). Investor concerns over policy changes are the main reason for the industry's weak performance, particularly expectations that the new government may adjust the investment tax credits and 45X advanced manufacturing tax credits in the Inflation Reduction Act (IRA). Additionally, the tariffs imposed by the Trump administration on Southeast Asian countries (such as Vietnam and Thailand) have further exacerbated supply chain uncertainties.

Overall, Goldman Sachs believes the solar industry currently faces three major challenges: Policy and tariff uncertainties: The future of IRA subsidies remains unclear, while Southeast Asian tariffs have increased cost pressures on non-U.S. suppliers; Intense price competition: Although prices for polysilicon and wafers have risen, module prices continue to decline due to oversupply; Demand fluctuations: The new pipeline for utility-scale solar projects in the U.S. fell by 53% year-on-year in the first quarter, reflecting developers' concerns about policy and macroeconomic conditions.

However, Goldman Sachs believes that in the long term, the growth in electricity demand and solar energy as a rapidly deployable energy form will still drive the industry's recovery. It is expected that the installed capacity of utility-scale solar in the U.S. will grow by 8% in 2025.

At the corporate level, the performance and prospects of different companies vary. Goldman Sachs believes that Array Technologies, SolarEdge Technologies (SEDG.US), and Nextracker have short-term appeal. These companies are considered to have more investment value in the current environment due to lower market expectations or strong execution capabilities.

In detail, Goldman Sachs expects Enphase Energy (ENPH.US) to have relatively robust performance in the first quarter, but growth in the second half still faces uncertainties, mainly due to demand driven by safe harbor provisions in the first half and ongoing challenges in the U.S. residential market. However, with its product advantages, it is expected to gain more market share in competition with Tesla (TSLA.US), maintaining a "Buy" rating for Enphase Energy, with the target price lowered from $105 to $90. It is expected that SolarEdge will see quarter-on-quarter improvements in revenue and profit margins in 2025, generating positive free cash flow, and is likely to benefit from revenue growth brought by safe harbor provisions and an increase in market share in the U.S. residential market, thus receiving a "Buy" rating The rating and target price have been lowered from $31 to $27. Shoals Technologies (SHLS.US) is expected to have limited near-term catalysts, with first-quarter performance generally in line with expectations, but full-year performance may rely more on the second half, and gross margins are unlikely to see significant improvement in the short term. Investors need to pay attention to its order conversion and new product launches. The firm currently maintains a "Buy" rating for Shoals, with a target price lowered from $7 to $5.

Fluence Energy (FLNC.US) is facing challenges in its battery supply chain and recent outlook due to tariff uncertainties, with some costs expected to rise by 2025, and order activity may be disrupted. However, with the increase in domestic manufacturing capacity, there is still potential for market share growth in the long term. Goldman Sachs maintains a "Buy" rating for Fluence, with a target price lowered from $12 to $7. Sunrun (RUN.US) is expected to start weakly in 2025, affected by the state of the U.S. residential solar market, consumer sentiment, and macroeconomic factors, but its cash generation capability is expected to improve. Investors need to focus on its response strategies to changes in the competitive environment and the pace of cash generation, maintaining a "Buy" rating, with a target price lowered from $15 to $13.

First Solar (FSLR.US) is expected to have relatively flat first-quarter performance, despite relatively healthy demand, but pricing and policy uncertainties have affected order conditions. Investors need to pay attention to its new order growth, international business layout, and policy dynamics, maintaining a "Buy" rating, with a target price lowered from $274 to $235. Nextracker is expected to indicate that EBITDA and EPS for fiscal year 2026 may exceed market consensus, with gross margins expected to maintain upward potential, and orders and backlog are expected to grow. Array is expected to have relatively robust first-quarter performance, despite facing legacy business issues with low profit margins, but is expected to rebound in performance in the second quarter. Investors need to focus on its order growth, pricing power, and changes in market share. Currently, Goldman Sachs has lowered Array's target price from $10 to $9