The U.S. solar industry faced a 24% year-over-year decline in second-quarter 2025 installations, with all segments except commercial solar shrinking due to unfavorable federal policies and trade challenges. Tariffs imposed in 2025 have significantly increased component and operational costs. Additionally, new federal rules have introduced permitting uncertainties and constrained tax incentives, threatening near-term growth. However, positive projections from the EIA show solar powering over half of new U.S. electricity generation in 2025, signaling a rebound. While headwinds remain, growing demand and installation trends should sustain U.S. solar industry momentum. A few prominent forerunners in this industry that solar investors may add to their portfolio are Sunrun Inc. ((RUN Quick QuoteRUN - Free Report) ), Shoals Technologies Group ((SHLS Quick QuoteSHLS - Free Report) ) and Tigo Energy Inc. ((TYGO Quick QuoteTYGO - Free Report) ).

About the Industry

The Zacks Solar industry can be fundamentally categorized into two groups of companies. While one is involved in designing and producing high-efficiency solar modules, panels and cells, the other is engaged in installing grids and, in some cases, entire solar power systems. The industry also includes a handful of companies that manufacture inverters for solar power systems, which convert solar power from modules into electricity required by electric grids. Per a report by the Solar Energy Industries Association (“SEIA”), published in early September 2025, solar photovoltaic (“PV”) accounted for 56% of the new electricity-generating capacity added to the U.S. grid in the first half of 2025. Hence, it remains the nation's dominant form of new generating capacity.

3 Trends Shaping the Future of the Solar Industry

Impressive Projections Bolster Prospects: The U.S. solar industry took a hard blow lately in terms of installation statistics. As reported by SEIA, the U.S. solar industry installed 7.5 GWdc of new solar capacity during the second quarter of 2025, reflecting a 24% year-over-year decline. However, as we progress to the end of 2025, an improved installation trend in the second half of the year is expected to uplift the full-year results, as developers are anticipated to rush to complete projects to meet the new, earlier deadlines imposed by the U.S. government. To this end, the U.S. Energy Information Administration (“EIA”) expects that total U.S. electricity generation will grow 2.3% in 2025, with solar power supplying the largest share of this increase. EIA also predicts that new solar projects will account for more than half of the new generating capacity expected to come online this year. Such impressive projections should bode well for U.S. solar stocks.

Federal Policy Changes Cast a Shadow of Uncertainty: The U.S. government adopted a handful of policies in recent times that can be detrimental to the nation’s solar industry in the near term, with perhaps the most crucial one being the One Big Beautiful Bill Act (“OBBBA”). Officially signed into law in July, the OBBBA cut short many of the federal tax credits previously available for the solar industry as a result of the IRA, in addition to implementing new Foreign Entities of Concern (“FEOC”) requirements. To this end, Wood Mackenzie’s analysis predicts that FEOC restrictions could impact roughly half of operational solar manufacturing capacity over the next few quarters. This, in turn, may adversely impact the adequate supply of solar products in the nation. Moreover, the Treasury Department issued new guidance on Aug. 15 that made changes to the formal definition of the “beginning of construction” for solar projects utilizing federal tax credits. These recent federal policy shifts cast a shadow of uncertainty, potentially delaying or deterring investment and undermining the industry’s momentum in the upcoming quarters.

Tariff-Induced Costs Pose a Risk: The heightened U.S. tariff imposition on imported goods has been negatively impacting almost all industries, with solar being no exception. As expected, the tariff imposition has pushed up the cost of manufacturing for the solar industry players, who were already struggling with a shortage of raw materials thanks to the worldwide supply-chain challenges. Evidently, PV system costs increased in the second-quarter, following the Trump administration's implementation of 10% baseline tariffs in April 2025 (as per Wood Mackenzie’s latest report). In particular, the AD/CVD case on solar cells and modules increased module costs by 13% year over year across the distributed generation segments.

While residential system prices rose 2% year over year, commercial system prices surged 10%. Moreover, EPC overhead costs, and permitting, logistics, and miscellaneous costs increased an average of 30% year over year. These enhanced expenses bear the potential to constrain the U.S. solar industry’s capability to earn the profit it deserves as a result of increased installation anticipated in the coming quarters, and thereby may hurt the industry’s bottom-line performance in the near term.

Zacks Industry Rank Reflects Bright Outlook

The Zacks Solar industry is housed within the broader Zacks Oils-Energy sector. It currently carries a Zacks Industry Rank #43, which places it in the top 18% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects.

Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few solar stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags Sector & S&P 500

The solar industry has underperformed both its sector and the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively lost 22.5% in the past year, while the Oils-Energy sector rose 4.5%. The Zacks S&P 500 composite has surged 18.8% in the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of a trailing 12-month EV/EBITDA, which is commonly used for valuing solar stocks, the industry is currently trading at 5.52X compared with the S&P 500’s 18.22X and the sector’s 5.07X.

Over the past five years, the industry has traded as high as 50.91X, as low as 4.03X and at the median of 24.09X, as the charts show below.

EV-EBITDA Ratio (TTM)

3 Solar Stocks Worth Adding to Your Portfolio

Sunrun: Based in San Francisco, CA, the company develops, owns, manages and sells residential solar energy systems. On Sept. 12, 2025, Sunrun announced the pricing of a securitization of leases and power purchase agreements, marking its fifteenth securitization since 2015 and its fifth issuance in 2025.

According to Sunrun’s CFO, including this and a private securitization in August, the company has raised over $1.5 billion in senior and subordinated non-recourse debt financing in the third quarter alone, supporting profitable growth through diverse financing channels. This consistent capital market access should strengthen Sunrun’s financial flexibility and fuel its expansion in the growing residential solar market.

The Zacks Consensus Estimate for RUN’s 2025 revenues indicates an improvement of 11.2% from the prior-year reported figure. The consensus estimate for 2025 earnings has improved significantly over the past 60 days. The company currently sports a Zacks Rank #1 (Strong Buy).

Price & Consensus: RUN

Shoals Technologies: Based in Portland, TN, the company manufactures a diverse portfolio of solar balance of systems products, including combiner/re-combiner boxes, disconnect boxes, custom harnessing solutions, junction boxes, wire, in-line fuses and racking and monitoring solutions. On Aug. 18, 2025, Shoals Technologies Group announced the groundbreaking Maryvale Solar and Energy Storage Project near Wellington, New South Wales, Australia.

In partnership with PCL Construction and clean energy provider Gentari, the project will deliver 243 MW of solar capacity alongside 172 MW of battery storage. As one of the largest DC-coupled solar-plus-storage systems in Australia, Maryvale supports the country’s goal of attaining 82% renewable electricity by 2030 and enhances grid reliability. This milestone project bolsters Shoals’ international presence and growth prospects in the energy transition market.

The stock boasts a long-term (three-to-five years) earnings growth rate of 24%. The Zacks Consensus Estimate for 2025 sales indicates an improvement of 15.3% from the prior-year reported figure. The company currently carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price & Consensus: SHLS

Tigo Energy Inc.: Based in Campbell, CA, the company is a provider of intelligent solar and energy storage solutions. On Sept. 2, 2025, Tigo Energy announced that its three-phase Tigo EI Residential solution has successfully completed mandatory compliance testing with a Slovak distribution system operator. This certification confirms that the solution complies with local grid requirements and Slovak regulatory standards, ensuring safe, efficient, and innovative solar energy management.

It enhances energy independence by optimizing self-consumption and providing backup power capabilities. This certification should strengthen Tigo’s market position in Slovakia, facilitating broader adoption and supporting the company’s growth in European residential solar markets.

The Zacks Consensus Estimate for 2025 sales indicates an improvement of 91.9% from the prior-year reported figure. The consensus estimate for 2025 loss has improved over the past 60 days. It currently carries a Zacks Rank #2.

Price & Consensus: TYGO