Citi Upgrades Solar Stocks on AI Power Boom

Have you ever wondered what could possibly make an entire industry shrug off political headwinds and charge ahead like nothing happened? Picture this: just when everyone thought renewable energy was about to take a nosedive under new administration policies, something unexpected flipped the script. It’s not just wishful thinking—it’s happening right now in the solar space, and the catalyst might be sitting in your pocket, crunching data for your favorite AI app.

I’ve followed market twists for years, and rarely do you see a sector rebound this dramatically. Solar stocks crashed hard late last year, with good reason. But since spring, they’ve been on an absolute tear. The numbers don’t lie, and neither does the underlying driver that’s catching even seasoned analysts off guard.

The AI Energy Crunch That’s Reshaping Renewables

Let’s cut through the noise. Artificial intelligence isn’t just generating clever chat responses—it’s guzzling electricity at levels that would make traditional power grids sweat. Data centers powering these models need reliable, scalable energy, and fast. Where do you turn when coal plants are retiring and nuclear timelines stretch into decades? Straight to the sun, apparently.

This isn’t some fringe theory. Major tech companies are signing massive power purchase agreements with solar providers. The demand curve is steep, and supply chains are scrambling to keep up. In my view, this creates a perfect storm for certain solar players positioned at the intersection of technology and energy infrastructure.

Nextracker: The Tracking Specialist Poised for Takeoff

Imagine solar panels that don’t just sit there—they actively follow the sun like sunflowers on steroids. That’s Nextracker’s bread and butter. Their smart tracking systems boost energy output by up to 25% compared to fixed-tilt setups. In a world where every watt counts for AI workloads, that efficiency edge becomes pure gold.

The company went public not that long ago, but they’re already scheduling their first big analyst day. November 12th could be a watershed moment. Why? Because consensus estimates might be sleeping on the revenue acceleration possible when global utility-scale projects ramp up simultaneously.

We believe the potential for revenue growth indicated in consensus is underappreciated.

– Lead analyst covering the space

Think about their backlog—north of $4.5 billion. That’s not hypothetical; it’s contracted revenue waiting to flow through. Add in a management team that’s navigated multiple market cycles, and you start seeing why analysts are pounding the table.

Here’s where it gets interesting for income-focused investors. Whispers suggest capital returns could start next year. Not many renewable pure-plays offer that combo: growth visibility plus potential dividends. It’s like finding a tech stock that suddenly decides to act like a utility.

• Record backlog exceeding $45 billion provides multi-year revenue clarity
• Global customer mix reduces regional policy risk
• Tracking technology delivers measurable efficiency gains for large-scale projects
• Upcoming capital markets day likely to highlight underappreciated growth drivers

The price target revision tells the story: from $66 to $114. That’s not a tweak—it’s a complete re-rating of the growth trajectory. At current levels, we’re talking roughly 28% upside just to reach fair value, and that’s before any multiple expansion from returning capital.

Sunrun: Residential Solar’s Undisputed Heavyweight

While Nextracker plays in the utility sandbox, Sunrun owns the rooftops. They’re the largest pure-play residential solar installer in the U.S., holding nearly one-fifth of the market. In a fragmented industry, that scale matters more than ever.

Policy risk? They’ve largely neutralized it through smart financing structures and geographic diversification. Leverage concerns that plagued peers? Sunrun’s been methodically paying down recourse debt without diluting shareholders. Never issued equity—that’s discipline you can take to the bank.

Their market position creates a virtuous cycle. Bigger scale means better equipment pricing, which means more competitive customer offers, which means… you guessed it, even greater market share. It’s the kind of flywheel that makes competitors nervous.

Having paid down recourse debt, leverage levels have declined significantly.

Earnings drop November 6th, right after Halloween. If trick-or-treaters knew what might be coming, they’d skip the candy. The analyst community sees $26 as the new fair value—up from $11 previously. Do the math: that’s 27% potential upside from here.

But let’s zoom out. Residential solar adoption correlates strongly with electricity rates and grid reliability. As AI data centers cluster in specific regions, local grids strain. What happens when your Netflix buffers during peak AI training hours? Homeowners start looking seriously at battery-backed solar systems.

The Broader Solar ETF Rebound: Numbers Don’t Lie

Step back and look at the forest, not just the trees. The benchmark solar ETF touched bottom in April and has since rocketed more than 81%. That’s not random noise—that’s institutional money flowing in despite the political backdrop.

Year-to-date, our two featured names have crushed it: 143% and 122% gains respectively. Compare that to the broader market, and you understand why analysts are scrambling to catch up. The AI power narrative isn’t going away; if anything, it’s accelerating.

These aren’t cherry-picked stats. The entire solar complex is participating, from module manufacturers to inverters. But companies with strong balance sheets and clear AI adjacency are leading the pack.

Policy Headwinds vs. Economic Realities

Let’s address the elephant in the room. Anti-renewable rhetoric made headlines, and solar stocks initially sold off hard. Fair enough—policy matters. But markets ultimately price economic reality, not political soundbites.

Here’s the disconnect: AI development requires unprecedented power growth. The International Energy Agency projects data center electricity demand doubling by 2026. Where exactly does that power come from if not renewables? Building new natural gas plants takes years and faces permitting hurdles. Solar? You can deploy utility-scale projects in 12-18 months.

In my experience, markets hate uncertainty but love inevitability. The AI buildout feels inevitable. Solar’s role in meeting that demand? Increasingly so. Policy can slow things down, but physics and economics have the final say.

1. AI training clusters create localized power crunches
2. Grid operators issue warnings about capacity constraints
3. Tech giants sign direct solar PPAs to secure supply
4. Solar developers scale manufacturing and installation
5. Stock prices reflect growing order visibility

This chain reaction explains why solar stocks bottomed in April—right when the first wave of data center power warnings hit headlines. Smart money started positioning while retail investors were still panicking about policy changes.

Management Quality: The X-Factor Investors Often Miss

Both companies share something crucial beyond their market positions: battle-tested leadership. Nextracker’s team has executed through multiple solar cycles. Sunrun’s executives avoided the equity issuance trap that burned peers during downturns.

Perhaps the most underappreciated aspect is capital allocation discipline. In renewables, cash flow visibility separates winners from survivors. Companies that can fund growth internally while reducing leverage create compounding advantages over time.

Sunrun’s debt reduction strategy deserves special mention. By focusing on recourse debt payoff, they’ve materially de-risked the balance sheet without sacrificing growth. This positions them uniquely for the next leg up in residential adoption, especially as battery attachment rates climb.

Global Solar Adoption: Beyond U.S. Borders

Don’t make the mistake of viewing this through an American lens only. Nextracker derives significant revenue internationally. Europe, India, the Middle East—solar growth is accelerating globally as countries race to secure energy independence.

AI isn’t just an American phenomenon. Chinese tech giants, European cloud providers, Indian data center operators—all need power. Solar’s modularity makes it ideal for rapid deployment in emerging markets where grid infrastructure lags demand.

The beauty of Nextracker’s model? Their tracking systems work anywhere the sun shines. Geographic diversification smooths out regional policy fluctuations. When U.S. incentives wax and wane, international projects provide ballast.

Earnings Season: What to Watch

Nextracker reports Thursday—perfect timing ahead of their November analyst day. Key metrics: backlog growth, international mix, margin trajectory. Any commentary on 2026 visibility could move shares meaningfully.

Sunrun’s November 6th report will likely focus on installation volumes, attachment rates for storage, and cash generation. With leverage concerns fading, investors will zero in on subscriber additions and lifetime value metrics.

Both reports come against a backdrop of strengthening fundamentals. Solar panel prices have stabilized after last year’s glut. Supply chain bottlenecks are easing. The stage seems set for positive surprises.

Valuation Framework: Cheap Relative to Growth

Let’s talk numbers. Solar stocks trade at discounts to both historical multiples and broader clean energy peers. Why? Lingering policy fears and balance sheet concerns that are increasingly outdated.

When you strip away the noise, the growth runway looks compelling. AI-driven power demand could sustain elevated installation rates through the decade. Companies with visible backlogs and strong balance sheets deserve premium valuations.

The capital returns angle adds another layer. If Nextracker initiates buybacks or dividends, it joins a select group of renewables companies generating shareholder cash. That could attract entirely new investor cohorts—think dividend growth funds that previously avoided the sector.

Risk Factors: No Investment is Risk-Free

Balance requires acknowledging downsides. Policy remains fluid—changes to tax credits or import tariffs could pressure margins. Supply chain disruptions, while improved, aren’t eliminated. Interest rates affect project financing costs.

Competition is fierce. Chinese manufacturers continue flooding markets with cheap panels. Execution risk exists, especially for residential installers managing thousands of rooftop projects.

That said, the AI demand thesis provides a buffer. When hyperscalers need power yesterday, they’re less sensitive to incremental cost increases. Long-term contracts provide revenue predictability that mitigates many traditional solar risks.

The Bigger Picture: Energy Transition Accelerated

Zoom out further, and something profound emerges. AI isn’t derailing the energy transition—it’s supercharging it. The same computational revolution demanding more power is enabling smarter grid management, better weather forecasting for renewables, and optimized energy trading.

Solar companies sit at this convergence point. Their products generate the electrons AI needs while benefiting from the intelligence AI provides. It’s a feedback loop that could define energy markets for decades.

In my view, we’re witnessing the early innings of a structural shift. Investors positioning now, in companies with strong fundamentals and clear AI exposure, may look back at 2025 as an inflection point.

Positioning Your Portfolio for the Solar Surge

Direct stock picks aren’t for everyone. The solar ETF provides broad exposure with less company-specific risk. For those comfortable with individual names, focus on backlog quality, balance sheet strength, and management track record.

Dollar-cost averaging makes sense given volatility. Earnings seasons often create entry points. The November catalyst cluster—Nextracker’s analyst day, Sunrun’s results—could provide exactly that.

Long-term holders should view pullbacks as opportunities. The AI power buildout will span years, creating multiple entry points. Patience, combined with rigorous fundamental analysis, tends to reward in cyclical sectors like renewables.

Whatever your approach, the message is clear: solar’s story has evolved. No longer dependent solely on government incentives, the sector now rides a technological wave that’s proving more powerful than political currents. The upgrades we’re seeing reflect this new reality.

Sometimes the best investments hide in plain sight, dismissed by conventional wisdom until economic forces make their value undeniable. Solar stocks, powered by AI’s insatiable appetite, appear to be reaching that tipping point. The question isn’t whether demand will materialize—it’s which companies will best capitalize on the opportunity.

As always, do your homework. Read the earnings transcripts. Study the backlogs. Understand the financing structures. The rewards typically flow to those who look beyond headlines to the underlying energy math.

The sun keeps rising, AI keeps computing, and certain solar companies keep installing. In that simple equation lies what might be one of 2025’s most compelling investment narratives.