Assessing Solar's 2026 Growth Trajectory: A Market Share and Scalability Analysis

The US solar market is entering 2026 after a challenging second quarter, a period that serves as a stark reality check for the industry's momentum. Total installations fell to 7.5 gigawatts direct current (GWdc) in Q2 2025, marking a 24% year-over-year decline. This drop was broad-based, with the utility-scale segment alone seeing a 28% YoY decrease. Yet beneath this overall contraction, a clear divergence in growth drivers is setting the stage for a more complex year ahead.

The commercial segment stands out as the lone bright spot, posting a 27% year-over-year growth to add 585 MWdc. This surge is being driven almost entirely by a final wave of projects in California, where a healthy pipeline of installations under the state's former net metering regime (NEM 2.0) continues to come online. This is a classic policy-driven boom-and-bust cycle, with the commercial sector's growth now directly tied to the expiration of California's specific incentives.

Meanwhile, the utility-scale market, which had been a primary engine of expansion, is hitting a wall. Deployment slowed sharply in Texas, the nation's largest solar market, as average power prices earned by solar projects were down 50% in 2024 compared to the prior year. This dramatic compression in revenue potential is directly reducing the economic case for new development, creating a significant headwind for large projects.

The residential segment faces its own looming cliff. While it declined 9% YoY in Q2, the bigger threat is policy. The Section 25D tax credit for customer-owned residential solar expires at the end of 2025. This creates a clear deadline for the market to either accelerate installations or face a potential downturn in 2026, as high interest rates and economic uncertainty have already been suppressing demand.

The bottom line is a market in transition. The 2025 reality is one of uneven growth, where policy tailwinds in one segment (commercial in California) are offset by economic headwinds in another (utility-scale in Texas) and an impending policy cliff for the third (residential). This sets the stage for 2026, where the industry's ability to adapt to these divergent pressures will determine its trajectory.

The Scalability Equation: TAM, Manufacturing, and Execution

The solar tracker industry's explosive growth trajectory provides a clear runway for scaling. The global market is projected to expand from USD 8.67 billion in 2024 to USD 25.24 billion by 2032, growing at a compound annual rate of 14.3%. North America is the dominant region, holding a commanding 56.85% share of the global market in 2023. This massive, regionally concentrated opportunity is fueled by strong policy support and a surge in renewable energy investments, creating a fertile environment for companies with the capacity to execute.

Financial strength is a critical enabler of that execution. Nextpower (NXT) exemplifies a balance sheet positioned for growth, with roughly $845 million worth of cash and no long-term debt. This liquidity, combined with a record backlog of work in the third quarter of 2025 valued at roughly $5 billion, provides the runway to broaden its business scope. The company's plan to grow revenue from its non-tracking segments by tripling their contribution by 2030 hinges on this financial foundation. However, the scalability test is not just about capital; it is about execution across new product lines.

The investment community's view on where to play this growth is becoming more focused. Goldman Sachs has identified a clear preference for utility-scale solar in 2026, citing the steadier growth in that segment and the rising power demand from data centers. This shift suggests the market is looking past the residential market's near-term reset and toward larger, more predictable projects where companies can secure higher pricing and stable backlogs. For manufacturers, this means the path to capturing value is increasingly tied to securing these utility contracts and expanding capacity.

First Solar (FSLR) is highlighted as a standout in this environment, with Goldman noting its potential for higher average selling prices and scope for capacity expansion. This points to a key competitive dynamic: scalability is not just about market size but about manufacturing leverage and pricing power. Companies that can build out capacity to meet the growing demand for utility-scale projects while maintaining or improving margins are best positioned to capture the industry's value. The scalability equation, therefore, requires a blend of a massive, growing market, a fortress balance sheet, and the operational ability to win and fulfill large-scale contracts.

Valuation and Catalysts: From Policy Clarity to Data Center Demand

The solar sector's rebound in 2025, powered by a 48% surge in the Invesco Solar ETF, was a direct response to easing policy uncertainty. Fears that the Trump administration would aggressively roll back renewable tax credits proved overdone, allowing capital to rotate back into the space. This clarity has set the stage for a new phase, where the investment case must be weighed against forward-looking catalysts and persistent risks.

The primary near-term catalyst is steady utility-scale deployment. Goldman Sachs expects this segment to grow about 3% year-on-year in 2026, a modest but critical expansion that provides a floor for demand. More importantly, the bank sees this growth translating into stronger financial results, with revenue growth for covered companies averaging closer to 15%. A key driver of this demand is the rising power needs of data centers, which Goldman identifies as a source of incremental utility-scale solar demand. This creates a tangible link between a secular tech trend and solar project backlogs.

Valuation, however, remains a key variable. While the sector has recovered from early 2025 lows, Goldman Sachs notes that solar and storage stocks still trade at a discount to historical levels and other power-related sectors. The bank's analysis suggests a median upside of about 15% across its solar coverage, with Buy-rated names offering roughly 28% upside. This implies the market is pricing in a measured recovery, not a repeat of the explosive gains seen in 2025.

The main risk to this setup is the pending U.S. trade investigation into polysilicon. This probe, which could lead to tariffs, threatens to disrupt supply chains and impact costs for module manufacturers. While Goldman Sachs notes that the overall policy environment is more supportive, it explicitly flags this investigation as a pending question that could weigh on sentiment. For now, the sector is consolidating from its strong 2025 performance, with the path forward dependent on whether utility-scale growth and data center demand can offset any supply chain headwinds.