What Happened?
A number of stocks fell in the morning session after a GOP bill was passed to end some of the tax benefits granted to clean energy companies during the Biden administration.
The "tax and spending bill", which narrowly passed the House of Representatives, targeted major elements of the Inflation Reduction Act, aiming to significantly reduce or eliminate tax credits for wind, solar, and electric vehicles years earlier than planned.
The immediate concern is the potential for reduced financial incentives that have spurred investment and growth in the renewable energy sector. The prospect of an accelerated phase-out of these crucial tax credits was likely affecting investor confidence, leading to a sell-off in solar companies.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Renewable Energy company Nextracker (NASDAQ: NXT) fell 5.6%. Is now the time to buy Nextracker? Access our full analysis report here, it’s free.
- Renewable Energy company Array (NASDAQ: ARRY) fell 8.6%. Is now the time to buy Array? Access our full analysis report here, it’s free.
- Renewable Energy company Sunrun (NASDAQ: RUN) fell 39.2%. Is now the time to buy Sunrun? Access our full analysis report here, it’s free.
- Renewable Energy company First Solar (NASDAQ: FSLR) fell 5.2%. Is now the time to buy First Solar? Access our full analysis report here, it’s free.
Zooming In On Sunrun (RUN)
Sunrun’s shares are extremely volatile and have had 76 moves greater than 5% over the last year. But moves this big are rare even for Sunrun and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 7 months ago when the stock dropped 29.3% on the news that renewable energy stocks declined as Republican party candidate Donald Trump was declared the winner of the 2024 US presidential election.
For clean or renewable energy stocks, President-elect Trump is considered a headwind to their businesses. Specifically, his administration could lead to an overhaul of recent industry progress, including a repeal of President Biden’s Inflation Reduction Act. The IRA, as it's known, offers long-term tax credits for solar, wind, geothermal, and other renewable energy projects, often extending them for a decade. These tax credits offer stability and predictability, enabling companies to make long-term investment plans.
For example, solar and wind energy developers benefit from a 30% investment tax credit (ITC), which can increase further if certain labor and domestic content standards are met.
Sunrun is down 36.4% since the beginning of the year, and at $6.50 per share, it is trading 69.8% below its 52-week high of $21.50 from August 2024. Investors who bought $1,000 worth of Sunrun’s shares 5 years ago would now be looking at an investment worth $409.72.
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