Solar Stocks: A Stealth Growth Engine in 2025

The solar energy sector has long been a poster child for green energy optimism, but 2025 has brought a more nuanced narrative. After years of volatility and underperformance, the Invesco Solar ETF (TAN) is showing signs of a stealth turnaround. With a year-to-date return of 23.73% as of September 2, 2025, TAN has outpaced the broader market in recent months, even as it lags behind the S&P 500’s 17.6% annual gain [1]. This divergence hints at a sector in transition—balancing near-term headwinds with long-term tailwinds.

The TAN ETF: A Volatile but Resilient Proxy

TAN’s performance in 2025 has been a rollercoaster. For much of the year, it trailed the market, with a -3.1% return for the year as of August [2]. However, the last three months have seen a dramatic reversal: TAN surged 11.7%, outperforming the S&P 500 by a wide margin [2]. This rebound coincides with renewed investor interest in home solar energy, as highlighted in a JPMorgan report noting “a surge in demand for residential solar installations driven by falling panel costs and state-level incentives” [3].

The ETF’s volatility—reflected in a beta of 1.36 and 20-day volatility of 44.24%—makes it a high-risk, high-reward play [3]. Yet this volatility is also a feature, not a bug, for investors seeking exposure to a sector poised for structural growth. TAN’s concentration in solar-specific companies (its top 10 holdings account for 60.75% of assets) amplifies both its risks and its potential [2].

Undervalued Constituents: First Solar and Nextracker Lead the Charge

Two of TAN’s largest holdings, First Solar (FSLR) and Nextracker (NXT), exemplify the sector’s duality: undervalued momentum and strategic positioning in the energy transition.

First Solar, which accounts for 9.38% of TAN’s assets, is trading at a forward earnings multiple of 8.32X, one of the lowest in the sector [2]. This valuation discount reflects lingering concerns about technical issues with its Series 7 modules, which could cost up to $100 million in remediation [2]. However, the company’s fundamentals are robust: it has secured $19.8 billion in contracted solar module sales through 2030 and plans to expand production to 25 GW annually by 2026 [2]. Analysts project 16.3% year-over-year sales growth for 2025, suggesting the market may be underestimating its long-term potential [2].

Nextracker, meanwhile, has outperformed First Solar in recent months, with a 38.4% gain over the past three months compared to FSLR’s 20.3% [2]. The company’s 14.55X forward multiple is higher, but its strategic moves—such as acquiring Bentek Corporation to bolster its domestic supply chain and securing a 550 MW solar park in Greece—signal strong growth positioning [2]. Nextracker’s earnings estimates have been revised upward in recent months, despite near-term pressure from U.S. tariffs on solar components [2].

The Energy Transition: A Tailwind for Solar

The broader context for TAN’s resurgence is the accelerating energy transition. Solar power is now the cheapest source of electricity in most parts of the world, according to the International Renewable Energy Agency (IRENA). This cost competitiveness, combined with policy tailwinds like the U.S. Inflation Reduction Act’s tax credits and Europe’s Green Deal, is creating a “virtuous cycle” of demand and innovation [3].

For TAN, this means more than just short-term gains. The ETF’s focus on global solar companies—from U.S. manufacturers to Chinese panel producers—positions it to benefit from both domestic and international growth. As one analyst noted, “TAN isn’t just a bet on solar; it’s a bet on the entire value chain, from polysilicon to inverters to installation” [3].

Risks and Realities

No investment is without risks. TAN’s high concentration and volatility make it unsuitable for risk-averse investors. The sector also faces headwinds, including U.S. tariffs on solar imports and geopolitical tensions in key markets like China. Additionally, the ETF’s long-term returns have been negative over three- and five-year horizons [3], underscoring the importance of a patient, strategic approach.

Conclusion: A Stealth Growth Engine

The Invesco Solar ETF may not be the most glamorous corner of the market, but its recent performance and the strength of its constituents suggest it’s a stealth growth engine in 2025. For investors willing to stomach volatility, TAN offers a concentrated, high-conviction play on the energy transition. As the world pivots toward renewables, solar stocks—led by TAN’s undervalued momentum—could become the next big story in 2025.

**Source:[1] Invesco Solar ETF (TAN) Stock Price, News, Quote & History, [https://finance.yahoo.com/quote/TAN/][2] First Solar or Nextracker? Uncovering the Smarter Solar Investment Play, [https://www.nasdaq.com/articles/first-solar-or-nextracker-uncovering-smarter-solar-investment-play][3] TAN: Invesco Solar ETF - Stock Price, Quote and News, [https://www.cnbc.com/quotes/TAN]