Trimming but Not Exiting: A Strategic Reassessment of First Solar in a Shifting Capital Landscape

The global capital landscape has entered a new era marked by tighter monetary policies, heightened regulatory scrutiny, and recalibrated investor expectations. For companies like First Solar (FSLR), which operates in a sector historically reliant on easy money and policy-driven tailwinds, this transition demands a nuanced reassessment of valuation realism and portfolio positioning. While the solar industry's long-term fundamentals remain intact, the interplay of macroeconomic headwinds and policy uncertainty necessitates a recalibration of strategic priorities.

Valuation Realism: A Delicate Balance

First Solar's recent financial performance underscores both its strengths and vulnerabilities. In Q1 2025, the company reported net sales of $0.8 billion, a decline from the prior quarter's $1.6 billion, attributed to seasonal reductions in module sales volume. However, gross margins improved to 41%, driven by a higher mix of U.S. factory module sales and favorable Section 45X tax credit valuations. EBITDA for the fiscal quarter ending in September 2025 reached $604.16 million, reflecting operational efficiency despite market headwinds.

Valuation metrics, however, reveal a mixed picture. The trailing twelve months (TTM) P/E ratio stands at 20.88, while the forward P/E for 2025 is 18.8x. These figures suggest a moderate premium to earnings growth, but the PEG ratio of 1.65-as of December 31, 2025-indicates that the stock is trading at a price-to-earnings level that exceeds its growth prospects. This premium is further amplified by an EV/EBITDA ratio of 15.7x and an EV/Revenue multiple of 7.0x, metrics that position First Solar at a relative disadvantage compared to peers in the broader technology and semiconductor sectors, such as NVIDIA and Broadcom, which exhibit significantly lower PEG ratios.

Industry Trends and Macroeconomic Headwinds

The U.S. solar sector's trajectory in 2025 has been shaped by a confluence of policy shifts and financial pressures. The passage of the One Big Beautiful Bill Act (OBBBA) has introduced critical uncertainties, eliminating key federal tax credits like Section 25D for residential solar after 2025 and Sections 45Y and 48E for commercial and utility-scale solar after 2027. According to research, these changes have created a "race against the clock" for developers to complete projects before credits expire, with a July 4, 2026, deadline for construction to qualify for extended benefits.

Simultaneously, the industry faces a tightening credit environment. Rising interest rates have inflated financing costs, particularly for residential solar, which saw a 9% year-over-year decline in installations. Supply chain bottlenecks-exacerbated by tariffs on solar components and surging material prices for polysilicon and lithium-have further strained project economics. These factors collectively challenge the sector's ability to maintain historical growth rates, even as utility-scale solar installations remain resilient, accounting for 9.7 GWdc of the 11.7 GWdc installed in Q3 2025.

Portfolio Positioning in a Post-Easy-Money Era

For investors, the key question is whether First Solar's current valuation justifies its inclusion in a risk-aware portfolio. The company's focus on utility-scale solar-a segment that grew 26% year-over-year in Q3 2025-positions it to capitalize on near-term demand, particularly as developers rush to meet OBBBA deadlines. However, its exposure to policy-driven cycles and supply chain vulnerabilities necessitates caution.

First Solar's ability to navigate these challenges hinges on its capacity to optimize tax credit eligibility, streamline compliance with FEOC requirements, and maintain operational margins amid rising input costs. While its EV/EBITDA and P/E ratios suggest a reasonable valuation, the elevated PEG ratio implies that investors are paying a premium for growth that is increasingly contingent on external factors. In a post-easy-money era, where capital markets demand demonstrable resilience and clarity, this premium may not be fully justified.

Strategic Implications

The case for trimming, rather than exiting, First Solar's position lies in its structural advantages: a strong balance sheet, expertise in U.S. manufacturing, and alignment with utility-scale solar's near-term tailwinds. However, the decision to reduce exposure reflects the need to reallocate capital toward assets with clearer visibility on earnings and cash flow. For long-term investors, First Solar remains a compelling but conditional bet-one that requires continuous monitoring of policy developments, supply chain dynamics, and the company's ability to adapt its capital allocation strategy.

In conclusion, the solar sector's transition from an easy-money paradigm to a more disciplined capital environment demands a recalibration of expectations. First Solar's valuation, while not egregious, reflects a delicate balance between growth potential and macroeconomic risks. Trimming the position is a prudent step to align with this new reality, but exiting entirely would overlook the company's enduring strengths in a sector that, despite its challenges, remains central to the global energy transition.