3 Alternative Energy Stocks to Watch Amid Escalated Tariff Uncertainty

A Zacks report indicates a mixed outlook for U.S. alternative energy stocks, with the booming EV market and a projected 4.5% increase in U.S. wind generation in 2025 acting as tailwinds. However, rising raw material costs and increased import tariffs, including a 25% tariff on steel and aluminum, are expected to create headwinds for the industry, leading to project cancellations. Despite these challenges, the Alternative Energy Industry has outperformed its sector and the S&P 500 over the past year, surging 41.9%.

Analysis

The U.S. alternative energy sector presents a bifurcated outlook, driven by robust long-term demand from the electric vehicle market, which is projected for a compound annual growth rate (CAGR) of 12.6% between 2025 and 2029, and a forecasted 4.5% year-over-year increase in U.S. wind generation for 2025. However, the sector is simultaneously constrained by significant near-term challenges, including heightened import tariffs, notably a 25% levy on steel and aluminum implemented in March 2025, and an executive order from January 2025 pausing offshore wind leasing. These factors have exacerbated existing high raw material costs, contributing to $8 billion in clean energy project cancellations during Q1 2025. Despite these headwinds and a Zacks Industry Rank of #143 (placing it in the bottom 42% of industries) signaling a gloomy near-term earnings outlook with a 0.9% downward revision in the current fiscal year's bottom-line estimate since March 31, 2025, the industry has demonstrated strong past performance, surging 41.9% over the last year. Nevertheless, the industry currently trades at a high trailing 12-month EV/EBITDA multiple of 21.48, substantially above the S&P 500’s 16.65, indicating that valuations may already incorporate considerable optimism despite prevailing uncertainties and recent negative earnings estimate revisions. Global clean energy spending reached a record $2.08 trillion in 2024, underscoring fundamental support, but domestic policy and trade frictions introduce considerable volatility.

Key Decisions for Investors

• Investors should meticulously monitor geopolitical developments, U.S. trade policies, and raw material cost trajectories, as these factors critically influence project economics and sector profitability, evidenced by the $8 billion in Q1 2025 project cancellations.
• Exercise caution regarding the sector's elevated valuation, reflected in a 21.48x EV/EBITDA multiple, and the Zacks Industry Rank indicating a challenging near-term earnings environment before committing new capital.
• Adopt a selective investment approach, prioritizing companies with distinct positive catalysts and strong fundamentals, such as Ormat Technologies' innovative financing for new projects, Standard Lithium's regulatory progress in Arkansas, or Bloom Energy's reported revenue and margin expansion, while remaining cognizant of broader sector vulnerabilities.
• While acknowledging the sector's significant historical price appreciation of 41.9% over the past year, investors should temper near-term return expectations due to the adverse impacts of tariffs, persistent supply chain issues, and the negative earnings revisions highlighted by the industry's current ranking.