Domestic Production And Secular Trends Will Ignite Solar Transformation

Key Takeaways

• Strategic U.S. manufacturing expansion, policy tailwinds, and non-Chinese supply chain position First Solar for premium margins, growth, and long-term market leadership.
  
• Rapid tech innovation and massive backlog support industry-leading efficiency, secure supply, and above-industry revenue growth with reduced risk and volatility.
  
• Heavy reliance on favorable government policies, vulnerable technology position, and limited global diversification expose First Solar to significant demand, pricing, and earnings volatility risks.

Catalysts

A solar technology company, provides photovoltaic (PV) solar energy solutions in the United States, France, India, Chile, and internationally.

• Analyst consensus sees U.S. manufacturing expansion as a revenue driver, but the strategic move to blend international production with U.S. finishing lines-leveraging Section 45X credits and sharply lower tariff costs-could allow First Solar to unlock significantly higher margins and accelerate earnings growth in excess of consensus expectations, particularly as Chinese competitors are structurally excluded from the domestic market.
  
• Analysts broadly expect incremental pricing power from technology innovation, but the rapid commercialization of both CuRe and perovskite technologies-validated by lab and field results-could not only set a new industry standard for efficiency and longevity but also justify premium pricing and share gains, positioning future gross margins meaningfully higher than peers and projections.
  
• First Solar is benefiting from policy shockwaves and a rapidly evolving global trade landscape-long-term, their non-Chinese supply chain and active enforcement of intellectual property and import restrictions could lead to both a competitive moat and outsized capture of utility-scale demand, de-risking future cash flows and supporting premium valuations.
  
• The company's massive and growing backlog, with escalating customer urgency around secure supply highlighted by reneged contracts from Chinese suppliers, signals that First Solar is positioned to be the default choice for mission-critical energy projects tied to AI, data centers, and the re-shoring of U.S. manufacturing-pointing toward sustained visibility of both revenue and exceptionally high utilization well into the next decade.
  
• Secular electrification trends, the relentless rise of utility-scale solar as the go-to solution for new grid capacity, and First Solar's industry-leading energy return and resource efficiency create a long runway for above-industry revenue growth, while vertical integration and resource stewardship are likely to reduce input cost volatility and boost net margins for years to come.

First Solar Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on First Solar compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming First Solar's revenue will grow by 25.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 29.0% today to 52.0% in 3 years time.
• The bullish analysts expect earnings to reach $4.4 billion (and earnings per share of $41.2) by about August 2028, up from $1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, down from 15.4x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.4x.
• Analysts expect the number of shares outstanding to grow by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.32%, as per the Simply Wall St company report.

First Solar Future Earnings Per Share Growth

Risks

• A significant portion of First Solar's contracted backlog and U.S. market opportunity is supported by current government tax credits and trade policies, meaning any long-term global deceleration of subsidies or a reversal in protectionist industrial policy could sharply reduce demand and lead to lower module sales, margin erosion, and weaker revenue growth.
  
• Secular increases in global interest rates or persistent inflation may depress the economics of capital-intensive solar projects, making it harder for First Solar's customers to finance projects and slowing overall market growth, which could negatively impact long-term new bookings and earnings potential.
  
• Growing international commoditization and price pressures, especially from low-cost Asian competitors, combined with reported customer delivery deferrals, terminations, and reneged supply agreements, highlight both the risk of falling average selling prices and the potential for heightened revenue volatility and margin compression.
  
• Technology risk remains material, as First Solar's current and upcoming technologies (such as CadTel and perovskite) must keep pace with or outperform rapid advances in silicon-based and hybrid solar panel efficiency to preserve pricing power; failure to do so would likely result in declining market share and shrinking net margins.
  
• First Solar faces material customer and geographic concentration risks, evidenced by heavy reliance on U.S. policies and a relatively undiversified global footprint, which, if coupled with large-scale shifts in customer procurement strategies or regulatory regime changes, could materially disrupt revenue predictability and earnings stability over the long term.

Valuation

• The assumed bullish price target for First Solar is $283.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of First Solar's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $283.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.5 billion, earnings will come to $4.4 billion, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 10.3%.
• Given the current share price of $180.05, the bullish analyst price target of $283.0 is 36.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.