Is First Solar's Downgrade a Buying Opportunity or a Warning Sign?

The recent downgrade of First Solar (FSLR) by Jefferies in 2025 has sparked debate among investors about whether the move signals a mispriced opportunity or a cautionary flag. To evaluate this, we must dissect the valuation realism and strategic risks shaping the company's outlook, drawing on recent analyst reports, valuation metrics, and industry dynamics.

Valuation Realism: A Compelling Case for Undervaluation

First Solar's current price-to-earnings (P/E) ratio of 19.6x in 2025 starkly contrasts with the semiconductor industry average of 38.0x and its peer group average of 37.8x according to Alpha Spread. This discrepancy suggests the stock is trading at a significant discount relative to earnings, a metric that historically has attracted value investors. According to Simply Wall St, the fair P/E ratio for First Solar should be 38.0x, implying the stock is undervalued by over 47%.

A Discounted Cash Flow (DCF) analysis further reinforces this view. The model estimates First Solar's intrinsic value at approximately $485.34 per share-47.3% higher than its current price-as of 2025 according to Alpha Spread. This valuation hinges on projected free cash flow improvements, which are expected to reach $4.0 billion by 2029 according to Alpha Spread. Such optimism is rooted in the company's robust project pipeline, including a 53.7 gigawatt (GW) backlog valued at $16.4 billion as of September 30, 2025 according to Alpha Spread. These figures indicate that First Solar's valuation may not fully reflect its long-term cash-generating potential.

Strategic Risks: Tariffs, Competition, and Execution Challenges

Despite the attractive valuation, strategic risks loom large. Regulatory headwinds, particularly U.S. anti-dumping and countervailing duties on solar imports from Southeast Asia, have forced First Solar to revise its 2025 financial guidance downward. These tariffs exacerbate supply chain costs and complicate global competitiveness, especially as Chinese manufacturers continue to dominate low-cost solar panel production.

Jefferies' downgrade also highlighted concerns about margin compression and limited visibility into 2026 bookings, which could delay revenue recognition and strain near-term profitability according to Monexa AI analysis. While First Solar is expanding U.S. manufacturing capacity and leveraging domestic incentives like the Section 45X tax credit, these strategies require time to materialize and may not fully offset the immediate impact of tariffs according to Monexa AI analysis.

Competition remains another critical factor. First Solar's peers, including companies with higher P/E ratios, are aggressively scaling production and innovating in thin-film and photovoltaic technologies. If First Solar fails to maintain its technological edge or secure cost advantages, its market share could erode, undermining long-term growth.

Balancing the Equation: Opportunity or Warning?

The downgrade by Jefferies reflects a nuanced view: while First Solar's valuation appears undervalued, the company's strategic risks-regulatory uncertainty, margin pressures, and competitive dynamics-cannot be ignored. The key question is whether the market's skepticism is overblown or if these risks are material enough to justify a cautious stance.

For value-oriented investors, the current P/E ratio and DCF-derived intrinsic value present a compelling case. However, the risks associated with regulatory shifts and project execution must be carefully monitored. First Solar's ability to navigate these challenges will determine whether the downgrade proves to be a buying opportunity or a harbinger of deeper issues.

Conclusion

First Solar's stock appears to be trading at a discount relative to both earnings and intrinsic value, supported by a strong project pipeline and strategic investments in U.S. manufacturing. Yet, the downgrade underscores legitimate concerns about near-term profitability and external headwinds. Investors should weigh the valuation appeal against the company's capacity to execute its long-term strategy in a volatile regulatory and competitive landscape. For those with a long-term horizon and risk tolerance, the current discount may offer an entry point-but not without vigilance.