3 Solar Stocks to Watch Amid Policy and Tariff Headwinds

Industry Overview - The U.S. solar demand is strong, driven by utilities, businesses, and households adopting solar-plus-storage systems for decarbonization and energy resilience [1] - The Zacks Solar industry is divided into two categories: companies designing and producing solar modules and those installing solar power systems [2] - Solar's share of U.S. electricity generation is projected to reach 8% in 2026 and 9% in 2027, making it the leading source of new generating capacity [2] Trends Impacting the Solar Industry - Strong demand for solar power, particularly systems with battery storage, is expected to continue, with nearly 44 GWdc of capacity anticipated to be installed in 2026 [3] - The U.S. EIA forecasts a 17% increase in solar generation in 2026 and an additional 23% increase in 2027, indicating robust growth potential [3] - Declining interest rates are improving project economics by reducing borrowing costs, which can accelerate project approvals and construction [4] Regulatory Environment - The One Big Beautiful Bill Act has introduced challenges by scaling back tax credits and adding new Foreign Entity of Concern requirements, creating policy uncertainty [5] - Despite these challenges, SEIA's outlook suggests 246 GWdc of total solar installations through 2030, indicating long-term demand resilience [5] Economic Pressures - Increased U.S. tariffs on imported goods are raising manufacturing costs for solar companies, compounding existing raw-material shortages [6] - Commercial system pricing rose 9% in Q3 2025, driven by a 50% year-over-year increase in balance-of-electrical-system and racking costs [7] - Utility-scale costs also increased, with fixed-tilt systems rising 9% and single-axis tracking systems up 10%, largely due to new commodity tariffs [8] Industry Performance - The Zacks Solar industry currently ranks 143, placing it in the bottom 41% of over 243 Zacks industries, indicating a negative earnings outlook [9][10] - The solar industry has outperformed both its sector and the S&P 500, with a collective increase of 40.4% over the past year [12] Valuation Metrics - The solar industry is trading at an EV/EBITDA of 5.94X, compared to the S&P 500's 17.73X and the sector's 6.48X [15] Notable Companies - Canadian Solar: A leading manufacturer of solar PV modules, recently sold its 200 MWh Fort Duncan Battery Storage facility, supporting its capital-recycling strategy [18] - Tigo Energy: A provider of intelligent solar and energy storage solutions, set to benefit from its next-generation Tigo GO Battery, expected to enhance market penetration [22] - Sunrun: A developer of residential solar energy systems, reported a storage attachment rate of 71% in Q4 2025, with significant debt repayment improving its financial position [25]