Is it worth buying shares of a renewable energy company now?

We recently made a list 10 Best Renewable Energy Stocks to Buy, According to Hedge Funds. In this article, we’ll take a look at how Enphase (NASDAQ:ENPH) stacks up against other renewable energy stocks.

The future of renewable energy

The renewable energy industry is currently one of the most prominent sectors in the world. Examples of renewable fuels include wind power, hydropower, biofuels, and solar power. According to a report by Business Research Company, the global renewable energy market was valued at $1.10 trillion in 2024 and is expected to reach $1.55 trillion by 2028, growing at a compound annual growth rate (CAGR) of 8.8%. Environmental concerns and stringent environmental regulations in many developed countries have boosted the sector significantly, and the power generation industry has seen an increase in the installed capacity of renewable energy sources. The increase in energy demand and energy consumption are also some of the key reasons for the growing demand in the renewable energy market.

According to the International Energy Agency (IEA), global energy demand is forecast to grow by 3.4% per year through 2026. About 85% of demand is expected to come from China and India. Energy demand in India alone is forecast to grow by 6% per year through 2026, driven by strong economic growth and rising household consumption. Southeast Asia is expected to see electricity demand grow by 5% per year through 2026. In the United States, electricity demand is expected to grow moderately in the coming years, largely due to growing demand for data centers. Electricity consumption from data centers, artificial intelligence, and cryptocurrencies could potentially double to 1,000 TWh by 2026. According to the IEA, growth in low-carbon electricity generation is expected to meet global demand growth over the next three years, with renewable energy set to overtake coal as the leading energy source by early 2025.

The U.S. Energy Information Administration (EIA) projects that renewable energy deployment will increase by 17% in 2024, potentially reaching 42 GW and contributing nearly a quarter of the nation’s electricity generation. However, this growth could come at the cost of renewable energy due to high financing, labor, and land costs. Despite this, tax breaks from the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) are likely to keep solar and wind competitive. The solar and storage markets are expected to continue to expand, fueled by tax incentives and government support, particularly through programs such as the DOE Office of Loan Programs. On the other hand, the wind and hydrogen sectors could face challenges. Wind power faces higher implementation costs and delays in obtaining approvals, while hydrogen power struggles with a lack of government incentives to support its development.

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Investing in renewable energy

Hanchen Wang, equity analyst at DWS Group, is optimistic about the future of the renewable energy market, noting its growing appeal to investors due to the potential for stable long-term returns and alignment with global sustainability goals. Wang emphasizes that while renewable energy sources such as wind, solar and hydropower are gaining market share, they still face challenges such as high upfront costs and intermittency issues. He emphasizes that technological advances, including better energy storage solutions and improved grid infrastructure, are essential to overcome these obstacles and support the sector’s growth.

In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, highlighted the significant impact decarbonization has on industries and investments, calling it a major trend that is changing the landscape. The firm launched a dedicated renewable energy fund, initially raising $15 billion, with plans to launch a second fund. This initiative aims to help companies reduce their carbon emissions by investing in and developing renewable energy projects. Flatt emphasized that the firm is one of the largest global developers and owners of renewable energy assets, with solar and wind projects in 15 countries. The firm’s strategy includes not only building renewable energy infrastructure, but also delivering renewable energy directly to corporate customers, helping them meet their net-zero emissions commitments. The U.S. Inflation Reduction Act (IRA) has had a positive impact on the renewable energy sector, providing significant incentives that have accelerated project development. Flatt noted that the act has increased the likelihood of project completion, and more projects are being built at a faster pace, which is good for the renewable energy market.

The renewable energy sector is poised for significant growth, fueled by growing environmental awareness, favorable regulations, and advances in technologies such as wind, solar, and hydropower. While the industry faces challenges, including high upfront costs and technological barriers, its overall outlook is positive. With that in mind, here are the 10 best renewable energy stocks to buy, according to hedge funds.

Our methodology

In this article, we scanned clean energy ETFs and online rankings to compile a preliminary list of 50 renewable energy stocks. From this list, we narrowed our selection to the 10 stocks that were most widely held by hedge funds. Hedge fund data was pulled from our database of 912 elite hedge funds through Q2 2024. We also included the market capitalization of these companies as of September 2. The list is sorted in ascending order by hedge fund sentiment through Q2.

Why do we care about what hedge funds are doing? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (more details here).

An array of solar panels stretched across a large open field, its shiny panels reflecting sunlight.

Enphase (NASDAQ:ENPH)

Number of hedge fund owners: 42

Market capitalization as of September 2: $16.39 billion

Enphase (NASDAQ:ENPH) is a global technology company specializing in solar microinverters, energy storage solutions and energy management devices. Enphase’s (NASDAQ:ENPH) microinverters convert direct current (DC) from solar panels into alternating current (AC) for use and are key to optimizing solar energy systems, increasing efficiency and reliability, and are easy to install. The company is a leader in residential solar energy in the U.S., Europe and emerging markets in Asia.

Enphase (NASDAQ:ENPH) is strategically well-positioned to benefit from the U.S. Inflation Reduction Act (IRA) because the company’s microinverters can help customers qualify for the 10% Investment Tax Credit (ITC) under the Inflation Reduction Act’s Domestic Content Bonus Credit provisions, which are available for solar projects using a certain percentage of components manufactured in the U.S. This advantage is expected to help the company achieve higher sales and increase gross margins, especially in the fourth quarter of 2024.

Enphase (NASDAQ:ENPH) reported second-quarter revenue and earnings slightly below expectations due to weak sales in Europe. However, it maintained a 47.1% gross margin, beating expectations. Despite the competition, Enphase’s (NASDAQ:ENPH) microinverter technology remains a top choice for consumers and is making inroads into the market. California’s new “Net Energy Metering 3.0” policy, which encourages homeowners to consume solar energy instead of selling it back to the grid, has led to a significant increase in the adoption of battery storage systems. Enphase (NASDAQ:ENPH) reported a 32% increase in U.S. revenue in the second quarter and has already booked orders for 85% of its third-quarter revenue.

Enphase (NASDAQ:ENPH) products, including microinverters, power management software, and battery storage solutions, are expected to drive further growth. Industry analysts have a consensus rating of Buy on the stock, with an average price target of $126.17, implying a 7.55% upside potential from current levels. As of Sept. 2, the company is valued at $16.39 billion. The stock is held by 42 hedge funds worth $505.91 million as of Q2. As of June 30, Citadel Investment Group is the largest shareholder in the company with shares worth $141.66 million.

Total ENPH takes 6th place on our list of the best renewable energy stocks to buy. While we recognize ENPH’s potential as an investment, our belief is based on the belief that AI stocks offer a better chance of achieving higher returns in a shorter time frame. If you’re looking for an AI stock that has more promise than ENPH but is trading at less than 5 times earnings, check out our report on cheapest AI action.

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Disclosure: None. This article was originally published on Insider Monkey.