Why did solar stocks soar first? Solar, SunPower and Sunnova all skyrocketed today

Solar energy stocks First Solar (FSLR 18.69%), Solar power (SPWR 14.23%)AND Sunnova Energy (NEW 7.65%) today, they rose sharply, reaching 18%, 17.4% and 12.6%, respectively, as of 2:08 p.m. EDT.

First Solar received positive analyst ratings late yesterday and was up about 8% on Tuesday before rising again today. However, optimism seems to be clearly permeating the entire solar and clean energy industry.

This is likely because the content of the analyst note, combined with the recent focus on electricity demand in artificial intelligence (AI) data centers, has investors buying clean energy stocks as a segment that will benefit from AI, but unlike to technology, the company’s shares have recently been trading mainly at depressed valuations.

Solar Energy Stocks Is an AI Play?

Beyond being a secular growth story in their own right, investors are discussing energy stocks of all kinds as beneficiaries of the AI ​​revolution. Of course, a key part of the mix will be clean energy and solar stocks, which have seen a big correction.

On Tuesday, UBS (UBS -1.15%) Analysts Jon Windham and William Grippin raised their price target on First Solar to $270, forecasting the solar panel maker’s earnings to rise from $7.74 last year to $36.74 by 2027. Analysts mentioned that the combination of electricity demand coming from AI data centers along with protectionist policies would increase the market share of US company First Solar.

It is worth noting that First Solar offers leading think film solar technology as opposed to crystalline silicon, which offers some advantages such as the ability to use cheaper materials, but also some disadvantages such as lower efficiency. Therefore, First Solar panels are more ideal for industrial-scale deployments that can power data centers.

In turn, Sunnova and SunPower focus more on photovoltaic installations in residential buildings. Therefore, it is not clear why they can grow so much. That said, these companies, which provide entire solar systems and related battery and monitoring technologies, are looking for ways to broadly support the electric grid.

So this could be a middle-of-the-road play, as an electrical grid will be needed to power all the new data centers. For example, Sunnova recently introduced its “virtual power plant” product, which allows residential customers to send stored energy back to the grid during periods of peak demand.

In SunPower’s case, the company’s stock could see a surge due to its newfound reputation as a meme stock. With the return of Roaring Kitty – the person who ushered in the meme stock era of 2021 – a few weeks ago, stocks that were enjoying massive short interest at the time soared. At the time, SunPower had 64% of its shares shorted, sending the stock skyrocketing. While shares ultimately fell again, recent optimism around solar stocks could be the reason for another short session.

Be careful when chasing this rally

Optimism about renewable energy sources has been around for some time. Last weekend a Barron’s Round Table highlighted several intriguing names in the renewable energy space as recovery candidates whose recovery will be driven by AI energy demand. Additionally, following rapid growth, First Solar has already achieved the new “upgraded” price target set by UBS analysts. So it’s possible that the benefit was quickly priced in here.

With this in mind, First Solar looks like the most promising of the three as it is the only one still profitable. Moreover, First Solar’s industrial and utility business is likely much more reliable than the residential space, where fickle consumers are currently pulling back on solar purchases due to higher interest rates.

Therefore, investors should be very picky in their stock selection to play on the AI ​​electricity trend. Unlike today’s rally, the benefits won’t be as broad in the long run.