3 Stocks to Buy as Solar Power Set to Drive 50%+ of New Capacity

The U.S. solar industry experienced a 24% year-over-year decline in Q2 2025 installations, primarily due to new federal policies, including reduced tax credits and increased costs from tariffs, which introduced significant uncertainty and supply chain challenges. Despite these near-term headwinds, the U.S. Energy Information Administration (EIA) projects solar will account for over half of new U.S. electricity generation in 2025, signaling an expected rebound in the second half of the year as developers accelerate project completion. This anticipated growth, despite recent market underperformance, continues to highlight investment opportunities in key players such as Sunrun, Shoals Technologies, and Tigo Energy.

Analysis

The U.S. solar industry is facing a significant dichotomy between severe near-term headwinds and a robust long-term growth outlook. Second-quarter 2025 installations fell 24% year-over-year, directly impacted by adverse federal policy shifts, including reduced tax credits under the OBBBA legislation, and cost inflation from tariffs. These pressures have tangibly increased costs, with module prices for distributed generation rising 13% YoY and EPC overhead surging 30% YoY. Consequently, the sector has substantially underperformed the market, declining 22.5% over the past year. Despite these challenges, which contribute to a Zacks Industry Rank indication of 'bleak near-term prospects', the EIA projects solar will account for over half of new U.S. electricity generation in 2025, with an installation rebound expected in the second half of the year. The industry's current valuation reflects this distress, trading at a trailing EV/EBITDA multiple of 5.52X, far below its five-year median of 24.09X and the S&P 500's 18.22X. Within this challenged landscape, certain companies are demonstrating strong execution, with Sunrun (RUN) securing over $1.5 billion in Q3 financing, Shoals Technologies (SHLS) expanding into Australia, and Tigo Energy (TYGO) achieving key certification in Europe.

Key Decisions for Investors

• Given the industry's significant underperformance and low EV/EBITDA multiple of 5.52X, investors should evaluate the sector for potential value, but remain cautious due to ongoing policy and cost-related volatility.
• A stock-specific approach is advisable over broad sector exposure; consider focusing on companies with proven catalysts and strong fundamentals, such as Sunrun's demonstrated capital access, Shoals' international growth, and Tigo's aggressive sales growth projections.
• Closely monitor upcoming reports on installation rates for the second half of 2025 and any further guidance on federal policy implementation, as these will be key determinants for the timing and strength of the sector's recovery.