Why Institutional Investors Are Trimming Sunrun Amid a Strong 61% Rally - and What This Means for Long-Term Investors

Institutional investors have recently trimmed their stakes in Sunrun Inc. (RUN) despite the stock's 61% rally in 2025, a move that raises questions about the interplay between valuation, operational performance, and sector dynamics. While Sunrun's strategic pivot to a storage-first model and robust revenue growth have positioned it as a leader in the solar energy sector, the sell-offs by key institutional holders-such as Grantham Mayo Van Otterloo & Co. LLC and Neuberger Berman Group LLC-highlight lingering concerns about valuation sustainability and liquidity risks. This analysis unpacks the drivers behind the trimming and evaluates what this means for long-term investors navigating a market of mixed signals.

Operational Momentum and Sector Tailwinds

Sunrun's Q3 2025 results underscored its operational strength, with a 35% year-over-year increase in Contracted Net Value Creation and a Storage Attachment Rate of 70%, up from 60% in the prior-year period. These metrics reflect the company's successful integration of energy storage into its solar offerings, a critical differentiator in a sector increasingly shaped by grid instability and regulatory shifts. According to analysts, clarity around solar tax credits and the expiration of federal incentives are catalysts for third-party solar adoption, a space where Sunrun holds a dominant market position.

However, the company's financials remain a double-edged sword. While revenue surged 34.9% year-over-year to $724.6 million in Q3, Sunrun reported a net income of just $16.6 million and a deeply negative net margin of -120.6%. The firm's cash burn of $865.2 million in the quarter further amplified concerns about liquidity, particularly as it seeks to offload power purchase agreements (PPAs) to reduce debt.

Valuation Divergence and Institutional Caution

Sunrun's valuation metrics tell a story of optimism tempered by caution. The stock trades at a Forward P/E ratio of 25.05 as of October 2025, significantly above the solar energy sector's average of 17.09. This premium suggests investors are betting on Sunrun's long-term growth potential, particularly its ability to capitalize on the storage-first trend. Yet, the company's forward PEG ratio-expected to average 0.15 over the next five years-indicates that the market is pricing in aggressive earnings growth to justify the current valuation. For context, the broader alternative power generation industry has an average PEG ratio of 1.75 in 2025, highlighting Sunrun's outlier status. According to industry data, the EV/EBITDA multiple for the solar sector stood at 11.1x in Q3 2025, but Sunrun's specific ratio remains undisclosed.

Analysts at GLJ Research have warned that the company's reliance on PPAs and its cash flow deficit could expose it to liquidity risks if market conditions shift. This has prompted institutional investors to reassess their exposure. For instance, Grantham Mayo Van Otterloo & Co. LLC reduced its Sunrun stake by 7.9% in Q2, while Neuberger Berman Group LLC cut its holdings by 82.7% during the same period. These moves suggest a strategic rebalancing rather than a rejection of the company's long-term prospects.

What This Means for Long-Term Investors

For long-term investors, the trimming by institutional investors presents a nuanced outlook. On one hand, Sunrun's operational momentum-driven by its storage-first strategy and favorable industry tailwinds-positions it to benefit from the accelerating transition to decentralized energy solutions. Analysts have upgraded their price targets to an average of $19.54, reflecting confidence in the company's ability to scale. On the other hand, the valuation premium and operational challenges (e.g., negative net margin, cash burn) necessitate a cautious approach.

The key question for investors is whether Sunrun can translate its contracted value into sustainable earnings growth. If the company meets or exceeds its projected growth rates, the current valuation could prove justified. However, any shortfall in execution-such as delays in PPA offloading or slower-than-expected adoption of storage solutions-could trigger a re-rating. This dynamic underscores the importance of monitoring Sunrun's capital allocation decisions and its ability to improve EBITDA margins, which are critical to reducing its EV/EBITDA multiple to a more sustainable level.

Conclusion

Institutional trimming of Sunrun shares reflects a calculated response to valuation risks and operational uncertainties, not a dismissal of the company's strategic strengths. While the solar energy sector remains a compelling long-term play, investors must weigh Sunrun's premium valuation against its ability to deliver on growth expectations. For those with a long-term horizon and a tolerance for volatility, the recent sell-offs may present an opportunity to assess whether the company's fundamentals can support its lofty multiples-or if the market is overcorrecting to a more realistic valuation.