Solar Stocks Decline as Goldman Cuts Ratings on Enphase and SolarEdge (ENPH, SEDG)

The solar energy sector is reeling today following a significant downward revision of outlooks by Goldman Sachs on two of its key players: Enphase Energy (ENPH) and SolarEdge Technologies (SEDG). The investment bank, citing the looming expiration of crucial U.S. federal solar tax credits, downgraded Enphase to a “Sell” rating with a drastically reduced price target of $32, down from its previous $77.

SolarEdge was also hit, downgraded to “Neutral” from “Buy,” with a price target of $27. The news sent tremors through the market, exacerbating the already challenging year for solar equities.

Enphase Energy's stock price is down 4.37% in the pre-market, adding to the 3.58% drop seen during yesterday's session, and the 42.63% decline since the start of the year. SolarEdge's stock is down 1.45% pre-market, adding to the 1.06% drop seen Tuesday. SEDG has fared much better since the start of the year however, with a 76.69% gain leading in.

The downgrades stem from Goldman Sachs' reassessment of the residential solar landscape in the wake of recent policy changes embedded within the budget bill. Analyst Brian Lee, in a research note to investors, expressed concerns that the phasing out of individual tax credits, beginning in 2026, will significantly dampen residential solar demand.

The impact is expected to intensify beyond 2028, as the market fully adjusts to the economic realities of residential solar without the crutch of government incentives. This marks a considerable shift from the previously optimistic projections that fueled the sector's growth in recent years.

The Goldman Sachs downgrade is not an isolated event. Citi recently downgraded Enphase to “Sell/High Risk,” citing potential U.S. policy changes, slower utility rate hikes, and tariff headwinds. Similarly, Citi also downgraded Sunrun, another major player in the residential solar space, highlighting potential eliminations of investment tax credit adders that could impair the residential solar model.

Morgan Stanley also joined the chorus of bearish voices, downgrading SolarEdge to “Underweight” amid concerns over tight liquidity, weak earnings prospects, and declining market conditions in Europe.

The confluence of negative analyst revisions underscores the precarious position of these companies. The solar industry has thrived on government support, and the impending withdrawal of those incentives poses a significant threat to their business models. Residential solar installations, in particular, are highly sensitive to price fluctuations. Without tax credits, the economic proposition for homeowners becomes less compelling, potentially leading to a sharp decline in demand.

The solar industry faces a crucial test in the coming years. Whether Enphase and SolarEdge can successfully adapt to the new policy environment and maintain their growth trajectory remains to be seen.