Is First Solar's 10% Stock Drop a Buying Opportunity or a Warning Sign?

The recent 10% plunge in First Solar's (FSLR) stock price has sparked a critical debate among investors: Is this a buying opportunity amid undervaluation, or a warning sign of deeper structural challenges? The answer hinges on a nuanced evaluation of analyst downgrades, management's revised guidance, and the looming policy headwinds that could reshape the company's long-term trajectory.

Analyst Downgrades and Bullish Optimism: A Mixed Signal

The immediate trigger for the selloff was Jefferies' downgrade of First Solar from "Buy" to "Hold," accompanied by a reduced price target to $260 from $269. The firm cited "limited visibility into 2026 bookings" and skepticism about the anticipated benefits of Section 232 tariffs, which are expected to impose duties on imported solar panels. Jefferies also warned that potential carve-outs for Germany and other trading partners could dilute the pricing advantages First Solar might otherwise capture.

However, the analyst landscape is not uniformly bearish. Wells Fargo upgraded its rating to "Overweight" and raised its price target to $285, while UBS and GLJ Research also increased their targets, with UBS setting a $330 level and GLJ Research proposing $314.43. These bullish calls reflect confidence in First Solar's market leadership and its ability to capitalize on the U.S. solar boom. The mixed signals highlight a key tension: near-term uncertainties versus long-term growth potential.

Reduced Guidance and Margin Pressures

First Solar's 2025 has been marked by a series of guidance cuts and de-bookings, driven by margin pressures and shifting procurement dynamics. According to a report by Bloomberg, the company scaled back full-year 2025 guidance due to tariff-related costs, which are projected to reduce revenue by $100 million to $375 million. Developers are accelerating procurement decisions ahead of potential Section 232 duties and foreign entity of concern rules, further compressing First Solar's pricing flexibility.

The company's financials, however, remain resilient. Forecasted earnings per share (EPS) of $5.21 for the upcoming quarter-a 42.74% year-over-year increase-suggest strong operational momentum. Yet, Jefferies argues that these gains are not enough to offset the extended timeline for First Solar's domestic manufacturing expansion, which is expected to be fully operational by late 2026.

Policy Headwinds and Strategic Shifts

The most significant long-term risk lies in the policy environment. First Solar's Southeast Asia manufacturing facilities-critical to its cost structure-are under threat from U.S. tariffs and geopolitical tensions. As stated by CNBC, President Donald Trump's policies have created "significant economic headwinds" for these plants, potentially forcing the company to idle production in Malaysia and Vietnam.

In response, First Solar has accelerated its shift to domestic manufacturing, with a new 3.7 GW U.S. facility slated for completion by late 2026. While this aligns with the Biden administration's clean energy goals, the transition carries risks. Jefferies highlighted the possibility of non-cash underutilization charges as the company phases out Southeast Asian capacity. These charges could weigh on earnings and investor sentiment in the near term.

Weighing the Risks and Rewards

The investment calculus for First Solar hinges on two key questions: Can the company navigate the near-term policy turbulence, and will its domestic expansion deliver the expected returns? The bullish case rests on the company's strong balance sheet, improving free cash flow, and a projected $5.11 billion in 2025 revenue. Analysts like UBS argue that First Solar's technological expertise and vertical integration position it to dominate the U.S. solar market as tariffs reshape global supply chains.

Conversely, the bearish argument emphasizes the uncertainty surrounding Section 232 implementation and the operational risks of a costly domestic pivot. Jefferies' downgrade underscores the lack of near-term catalysts, noting that the benefits of expanded U.S. manufacturing will likely materialize only in 2026 or later. For risk-averse investors, this timeline may be too elongated to justify current valuations.

Conclusion: A Calculated Bet

First Solar's 10% stock drop reflects a market grappling with conflicting signals. On one hand, the company's fundamentals remain robust, with a clear path to domestic growth and strong demand for its technology. On the other, policy-driven headwinds and operational transitions pose meaningful risks. For investors with a long-term horizon and a tolerance for volatility, the current price may represent an opportunity to buy into a company poised to benefit from the U.S. solar renaissance. However, those prioritizing near-term stability may view the selloff as a cautionary signal. The key will be monitoring the pace of domestic manufacturing ramp-ups and the final shape of Section 232 regulations-factors that could either validate or undermine the bullish case in the months ahead.