3 Solar Stocks to Watch Amid IRA Funding Uncertainty

The U.S. solar industry faces mixed prospects despite record installations and a projected 33% rise in solar generation this summer; a temporary freeze on Inflation Reduction Act (IRA) funding in early 2025 disrupted project timelines, and high interest rates are weakening residential demand, leading to a 13% year-over-year decline in Q1 2025. Furthermore, China's dominance in solar module manufacturing, with 80% of global capacity, puts pressure on U.S. producers due to lower costs. Consequently, the Zacks Solar industry rank is in the bottom 26%, reflecting a negative earnings outlook and a 46% collective loss in stock value over the past year.

Analysis

The U.S. solar industry presents a mixed outlook, characterized by robust growth in utility-scale installations alongside significant headwinds. Photovoltaic solar constituted 69% of new U.S. electricity-generating capacity in Q1 2025, with installations reaching 10.8 gigawatts-direct current (GWdc), the fourth-largest quarterly figure. Projections indicate a 33% rise in U.S. solar generation this summer and an additional 32.5 GW of utility-scale capacity by year-end 2025. However, the sector faces considerable challenges: a temporary freeze on Inflation Reduction Act (IRA) funding in early 2025, though largely reversed by April, disrupted project timelines. Macroeconomic factors, including high interest rates and economic uncertainty, have suppressed residential solar demand, evidenced by a 13% year-over-year decline in Q1 2025 installations; SEIA projects flat residential growth for the next five years due to broader power sector issues, labor shortages, equipment constraints, and interconnection delays. Furthermore, China's dominance in solar module manufacturing, accounting for 80% of global capacity and boasting 20% lower production costs, exerts significant pricing pressure on U.S. producers. Reflecting these challenges, the Zacks Solar Industry Rank is #181 (bottom 26%), with the industry's aggregate bottom-line estimate for the current fiscal year revised down by 43.7% since March 31. Solar stocks have collectively underperformed, losing 46% over the past year, and the industry trades at a low trailing 12-month EV/EBITDA multiple of 4.69X. Despite the grim industry-wide metrics, certain companies show promise: Tigo Energy (TYGO) reported new product compatibility and projects 64% sales growth for 2025 with improved earnings estimates (Zacks Rank #2). Nextracker (NXT) acquired Bentek Corporation for $78 million, with its fiscal 2026 earnings estimate up 12.6% and an 11.9% long-term earnings growth rate (Zacks Rank #3). Array Technologies (ARRY) announced the acquisition of APA Solar, projecting 19.6% sales growth for 2025 and a 21.9% long-term earnings growth rate (Zacks Rank #3).

Key Decisions for Investors

• Investors should acknowledge the dichotomy within the solar sector: strong utility-scale growth potential contrasted with significant headwinds from macroeconomic pressures, policy uncertainty surrounding IRA funding, and intense international competition impacting overall U.S. solar profitability and recent stock performance.
• Given the industry's depressed valuation (4.69X EV/EBITDA) and substantial underperformance, a highly selective approach is warranted, focusing on companies like Tigo Energy (TYGO), Nextracker (NXT), and Array Technologies (ARRY) that demonstrate strong individual catalysts, strategic acquisitions, or positive earnings revisions, while recognizing the execution risks.
• Closely monitor key sector drivers including the stability and implementation of IRA incentives, fluctuations in interest rates impacting residential solar uptake, and the competitive landscape with Chinese manufacturers, as these will be crucial for the sector's recovery and future growth.