Peeking Into Solar ETFs Amid Trump Administration

The solar energy sector has been an area to watch in the Trump administration as it initially backed fossil fuels and was inclined toward the roll-back of certain renewable energy incentives, creating uncertainty for solar companies. Trump’s tariffs on imported solar panels are another threat to the industry as they raised costs, weighing on the margins of the industry.

Trump Regulations Proved Less Restrictive Than Feared

However, in reality, matters did not turn that bad. Solar stocks rallied in mid-August, after the U.S. Treasury Department released guidance on which projects qualify for clean energy tax credits, as quoted on Investopedia. The rules proved to be less restrictive than investors had feared initially, benefiting the industry players.

Decent Earnings Strength

In early August, First Solar Inc. FSLR posted Q2 EPS of $3.18, beating estimates but declining 2.2% year over year due to higher operating costs.Sales rose 8.6% to $1.10 billion, surpassing expectations by 6.6%.FSLR raised its 2025 revenue and shipment guidance while narrowing its EPS and profit forecast ranges.

In early August, Sunrun RUN came up with quarterly earnings of $1.07 per share compared with $0.55 in the prior-year quarter. The Zacks Consensus Estimate was of a loss of $0.18 per share. It posted revenues of $569.34 million, surpassing the Zacks Consensus Estimate by 2.17%.

In mid-August, SolarEdge Technologies SEDG posted Q2 adjusted loss of 81 cents per share that beat estimates and improved from last year's loss of $1.79.Its Q2 revenues rose 9.1% to $289.4 million, topping estimates by 5.7%.SEDG expects revenues in the range of $315-$355 million for Q3. The Zacks Consensus Estimate was $332.8 million prior to the earnings release, lower than the midpoint of the company’s guided range.

In late July, Enphase Energy Inc. ENPH posted Q2 adjusted EPS of $0.69, beating estimates and up 60.5% year over year.Q2 revenues rose 19.7% to $363.2 million, driven by higher sales in Europe and the United States.For Q3, ENPH expects revenues in the range of $330-$370 million. The Zacks Consensus Estimate was $366.2 million prior to the earnings release, which was near the high end of the company’s guided range.

Upbeat Industry Rank

The solar industry falls in the top 24% segment (at the time of writing). Its current Zacks Rank is 58 out of 245 Zacks-classified industries. The industry’s stock performance is up 13.5% so far this year (as of Sept. 15, 2025), in line with the S&P 500. However, over the past month, the performance sprinted with a 7.6% rise compared with a 2.7% uptick in the S&P 500.

The recent uptick can be attributed to the Treasury Department’s moderately favorable guidance. Analysts at Jefferies and Citi viewed the latest guidance as moderately positive for the solar space and noted that the industry avoided several feared worst-case scenarios, as quoted on the above-mentioned Investopedia article.

Cheaper Solar Industry Valuation

The industry trades at a forward P/E of 16.64X versus the S&P 500’s P/E of 19.85X. PEG (Ratio) of the industry is 0.66X versus the S&P 500’s score of 2.33X. Projected EPS growth of the solar industry is 11.43% versus 6.92% of the S&P 500.

Any Wall of Worry?

The U.S. solar industry added nearly 18 GW of new capacity in H1 2025, with solar and storage accounting for 82% of all new power capacity connected to the grid during this period, per SEIA and Wood Mackenzie, as quoted on solarquarter.com. But the report cautions that federal measures like the One Big Beautiful Bill Act pose challenges to future growth.

Trump’s One Big Beautiful Bill Act will put an end to two key tax credits for solar and wind projects in late 2027, as quoted on CNBC. Tariff is another concern. Arevon CEO expects costs for solar and battery storage projects to increase by about 30% due to metal tariffs, as quoted on the same CNBC article.

The industry’s return on equity and return on assets are also not hopeful. These companies are not cash-rich either. Cash flow ($/share) of the solar industry is negative $5.56 versus positive $2,785 possessed by the S&P 500.

Bottom Line

Despite all the hurdles, the incessant demand for power to fuel artificial intelligence may keep boosting alternative energy options such as solar. One can thus tap into solar-based exchange-traded funds (ETFs) like Invesco Solar ETF TAN and iShares Global Clean Energy ETF ICLN with a cautious outlook. TAN has gained 1.9% over the past five days, while ICLN has jumped 3.4%.

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This article originally published on Zacks Investment Research (zacks.com).

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