US Credits And Battery Storage Will Drive Change Amid Challenges

Key Takeaways

• Looming U.S. policy changes, rising competition, and market uncertainty threaten growth prospects, margins, and net income recovery despite current optimism.
  
• Margin expansion and commercial storage adoption are challenged by volatile costs, weakened distribution, and aggressive industry pricing pressures.
  
• Supportive policy tailwinds, expanding storage adoption, channel normalization, and advanced integrated offerings are enhancing SolarEdge's margins, market share, and long-term commercial competitiveness.

Catalysts

Designs, develops, manufactures, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations in the United States, Germany, the Netherlands, Italy, rest of Europe, and internationally.

• The rally in SolarEdge's stock appears to be pricing in robust future revenue growth driven by U.S. policy support (extension of manufacturing and storage credits), but risks are rising as the elimination of the 25D residential solar tax credit is expected to cause a substantial drop in U.S. residential demand in 2026, only partially offset by third-party owned (TPO) shifts-potentially constraining topline growth.
  
• Investors may be expecting margin expansion to accelerate as U.S. manufacturing ramps and global exports increase, but persistent elevated tariffs, increasing input/output volatility (such as the loss of natural EU FX margin "hedge" when exporting from the U.S.), and ongoing product mix headwinds threaten to compress gross margins and limit earnings growth.
  
• The current valuation may overlook intensifying industry competition and hardware commoditization, as price and market share battles in both Europe and the U.S.-including potential further pricing actions-could undermine net margins despite advances in new platforms and innovation.
  
• Forecasts for a meaningful boost from commercial and battery storage attach rates may be too aggressive, as adoption cycles could be hampered by macro uncertainties, weaker policy continuity, and the risk that competing integrated solutions outpace SolarEdge's offering, impacting future revenue streams.
  
• Elevated expectations for a "turnaround" may also underappreciate the risk of operating leverage failing to materialize quickly enough given recent inventory write-downs, ongoing cash outflow, and the lagging normalization of some European distribution channels, which could weigh on both free cash flow and net income recovery.

SolarEdge Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SolarEdge Technologies's revenue will grow by 20.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -185.2% today to 0.7% in 3 years time.
• Analysts expect earnings to reach $11.8 million (and earnings per share of $-0.02) by about September 2028, up from $-1.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $123.2 million in earnings, and the most bearish expecting $-106.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 170.8x on those 2028 earnings, up from -1.1x today. This future PE is greater than the current PE for the US Semiconductor industry at 30.1x.
• Analysts expect the number of shares outstanding to grow by 2.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.42%, as per the Simply Wall St company report.

SolarEdge Technologies Future Earnings Per Share Growth

Risks

• Extension of U.S. manufacturing tax credits and supportive legislation (like the recently passed One Big Beautiful Bill Act) create significant long-term incentives for domestic production, improving SolarEdge's cost structure, gross margins, and ability to serve both U.S. and global markets with U.S.-made products, which may stabilize or grow earnings.
  
• Growing battery storage attach rates and sustained policy support (e.g., storage tax credits, lingering incentives for third-party owned/TPO models) are expanding SolarEdge's total addressable market and increasing demand for higher-margin, integrated energy management and storage solutions, positively impacting revenue and margins.
  
• Accelerated channel normalization and company-specific inventory reductions in both Europe and the U.S. indicate that major inventory and working capital headwinds are abating, paving the way for clearer sell-through, improved cash flows, and reducing risk of future writedowns.
  
• Deployment of the Nexis next-generation platform and expanded software/EV charging offerings (including strategic agreements such as with Schaeffler and PG&E) strengthen product differentiation, R&D leadership, and the company's ability to capture share in emerging integrated solar+storage+EV and commercial markets, supporting long-term revenue growth and market share.
  
• Clear signs of initial market share gains and deepening partnerships in the European and U.S. commercial and industrial (C&I) segments, combined with a scalable manufacturing footprint, suggest SolarEdge is positioned to regain lost share, leverage fixed costs over higher revenues, and drive operating margin recovery in core geographies.

Valuation

• The analysts have a consensus price target of $20.836 for SolarEdge Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $11.8 million, and it would be trading on a PE ratio of 170.8x, assuming you use a discount rate of 15.4%.
• Given the current share price of $33.21, the analyst price target of $20.84 is 59.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.