UBS upgrades Solaria to “buy,” citing data center and storage growth potential

UBS Global Research upgraded Solaria (SLRS) to "buy" from "neutral," citing overlooked demand drivers from data centers and battery energy storage systems (BESS). The upgrade reflects UBS's belief that the market is undervaluing Solaria's secured 1.2GW in connection points for data centers and potential asset sales, which could add €6-7 per share in value; a first deal is expected in the second half of 2025. While UBS cut its price target by 5% to €9.55, it still implies over 35% upside from the current share price, projecting a 15% EPS CAGR for 2024-28.

Analysis

UBS Global Research has upgraded Solaria to "buy" from "neutral," catalysing a 7.4% rise in its shares, based on the premise that the market is underappreciating emerging demand from data centers and the strategic value of battery energy storage systems (BESS). This positive outlook contrasts with prevailing investor concerns about sector-wide curtailment risks, depressed solar prices in Spain, and a deceleration in capacity additions. Solaria has already secured over 1.2GW in connection points specifically for data centers and is reportedly in advanced discussions with five entities for potential joint ventures or asset sales. UBS projects these asset sales could reach €230 million by 2028, yielding approximately 60% in capital gains, and estimates that full monetization of the secured data center capacity could add €6–7 per share to Solaria's value. A key catalyst is anticipated in the second half of 2025 with the announcement of a first deal. Furthermore, BESS deployment is expected to alleviate grid congestion and improve pricing by enabling solar output to be shifted to peak demand periods, potentially justifying 15–22GW in new national capacity, which supports UBS's forecast for Solaria adding 4.3GW through 2028 – a figure significantly below Solaria's own 14.3GW target, yet still underpinning a projected 15% EPS CAGR for 2024–2028. Despite a 5% reduction in UBS's price target to €9.55, attributed to lower power price forecasts and moderated capacity addition expectations, this revised target still implies over 35% upside from the current price of €7. UBS highlights that Solaria trades at a substantial discount, approximately 75% below its historical P/E average and 50% below peers, arguing the stock is mispriced as "ex-growth" given its projected financial trajectory.

Key Decisions for Investors

• Investors should consider the revised 'buy' rating from UBS, as Solaria's shares may offer a compelling value proposition given the significant discount to historical P/E multiples and peers, especially if the market begins to price in growth from data center and BESS demand.
• It is crucial to monitor announcements regarding joint ventures or asset sales related to Solaria's 1.2GW data center pipeline, with a potential first deal in H2 2025 serving as a key catalyst for re-rating.
• Evaluate Solaria's ability to achieve the UBS-projected 15% EPS CAGR through 2028, weighing the substantial upside potential against risks from lower power price forecasts and the discrepancy between UBS's 4.3GW capacity addition forecast and the company's more ambitious 14.3GW target.