First Solar Stock (NASDAQ:FSLR): Cheaply Valued and Benefiting from AI

First Solar Stock (NASDAQ:FSLR): Cheaply Valued and Benefiting from AI

First Solar (NASDAQ:FSLR), a global solar energy solutions provider headquartered in Arizona, is a low-value AI beneficiary that had been overlooked by the market until recently. FSLR stock soared more than 30% between May 20 and 22 based on two news reports. First, UBS (NYSE:UBS) identified the company as one of the biggest winners in AI-driven electricity demand. Second, China has pledged to support the solar industry by ending a price war that has had a significant impact on the sector’s profitability. I am bullish on FSLR stock because I believe the projected growth has not yet been accurately reflected in its valuation.

First Solar Stock (NASDAQ:FSLR): Cheaply Valued and Benefiting from AI

The AI ​​opportunity

The rise of generative AI has placed immense pressure on global power grids, as AI applications require massive amounts of energy to operate. According to a study led by Dr. Alexandra Sasha Luccioni, head of AI and climate at Hugging Face, generative AI systems consume approximately 33 times more energy than computers running task-specific software applications.

According to data from the International Energy Agency, global data centers consumed 460 terawatt hours of electricity in 2022 and will use more than 1,000 terawatt hours of electricity by 2026, an exponential growth due to increasing use of AI. According to the IEA’s findings, this projected power consumption by data centers will be equivalent to the consumption of Japan, with a population of 125 million.

A quick look at the energy consumption trends of leading AI companies confirms that energy consumption has increased thanks to investments in AI. For example, Microsoft (NASDAQ:MSFT), in its Environmental Sustainability Report for 2023 released earlier this month, found that carbon emissions have increased by almost 30% since 2020, mainly due to the construction of new data centers to accommodate supports AI technology.

The AI ​​opportunity for First Solar arises from carbon neutrality targets promised by governments and multinational companies amid the rise of AI. The United States, for example, has committed to reducing its carbon emissions by at least 50% from 2005 levels by 2030. Microsoft, for its part, has promised to achieve a negative carbon footprint of ‘by 2030. The company also has an ambitious goal: to eliminate CO2 emissions. all carbon emitted by the company since its creation by 2050.

Apple (NASDAQ:AAPL) has also committed to achieving carbon neutrality for its supply chain and products by 2030. Given the massive increase in electricity consumption due to AI, large companies investing in AI will be forced to source their energy from sustainable sources, and First Solar can be considered one of the big winners from this expected development.

Investing for growth

First Solar is investing to expand its manufacturing capacity in the United States to meet the expected increase in demand for solar energy. During the first quarter earnings conference call earlier this month, the company discussed expansion plans in Ohio, Alabama and Louisiana.

The company is also focused on developing advanced solar technology to improve profitability and, therefore, profit margins. For example, First Solar plans to launch a perovskite development line and a new innovation center in the second half of this year.

China announces good news for FSLR stock

On May 22, Chinese regulators vowed to crack down on below-cost sales of solar equipment hardware, which is good news for established solar companies. Due to the growing number of solar equipment manufacturers, recent years have seen a build-up of manufacturing facilities, leading to oversupply in the market. Solar companies have been pushing the Chinese government for many months to intervene in hopes of eliminating companies that are undercutting market prices.

First Solar, as an established global player, will benefit from the Chinese government’s decision to take steps to end the price war in the solar sector.

Is Leading Solar Stock a Buy, According to Analysts?

On May 21, UBS analysts Jon Windham and William Grippin claimed that First Solar would benefit from power purchase agreements from large technology companies, as these technology giants have committed to betting on energy sources renewables to meet their growing electricity consumption in the AI ​​era. . Analysts expect strong earnings per share growth for First Solar, from $7.74 in 2023 to $36.74 by 2027. UBS raised its price target on First Solar from $252 to $270 and maintained its Buy rating.

Piper Sandler analyst Kashy Harrison followed suit by increasing his First Solar price target from $195 to $219. Additionally, JPMorgan (NYSE:JPM) recently raised its price target from $240 to $262 and maintained a Buy rating, while Susquehanna issued a $258 price target after factoring in projected AI-driven renewable energy demand. Philip Shen, an analyst at Roth Capital Markets, also believes that First Solar will be one of the biggest beneficiaries of the booming AI sector.

Overall, based on ratings from 27 Wall Street analysts, the average price target for FSLR stock is $238, implying a downside risk of 14.5% from the current market price.

Although analyst price targets suggest that investing in First Solar today is a risky bet, recent updates indicate that the average price target could continue to rise for the foreseeable future. This expectation is based on the company’s favorable positioning in the renewable energy market and its ability to benefit from increased demand for electricity.

First Solar is currently valued at a forward P/E of just 20x, making it inexpensive given that analysts are forecasting a five-fold increase in earnings per share by 2027.

The bottom line: First Solar is cheap and attractive

First Solar is well positioned to meet the growing demand for electricity resulting from the rise of AI technology. The company appears undervalued in the market and recent upgrades from Wall Street analysts will likely act as a catalyst pushing the stock price higher. China’s commitment to supporting the solar sector by targeting suppliers who are undercutting prices will also fuel the recent momentum behind First Solar stock.

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