In this article, we look at the 8 most promising clean energy stocks according to hedge funds.
The Future of Clean Energy
The clean energy industry is rapidly becoming one of the most significant sectors globally. A report by Business Research Company estimates that the global clean energy market, valued at $1.10 trillion in 2024, is projected to grow to $1.55 trillion by 2028, at a compound annual growth rate (CAGR) of 8.8%. Environmental concerns, along with stringent regulations in many developed countries, are driving this expansion. Additionally, rising global power demand and energy consumption are critical factors fueling growth in the clean energy market.
The International Energy Agency (IEA) forecasts that global energy demand will increase by 3.4% annually through 2026, with China and India accounting for 85% of this growth. India, in particular, is expected to see a 6% annual increase in energy demand driven by its strong economic growth and rising household consumption. Southeast Asia is forecasted to experience a 5% annual rise in electricity demand over the same period. In the United States, data centers, artificial intelligence (AI), and cryptocurrency operations are expected to cause an increase in electricity demand, potentially doubling usage to 1,000 TWh by 2026.
IEA forecasts suggest that the growth in electricity generation from low-emission sources will meet the global demand increase over the next few years, with clean energy projected to surpass coal as the primary energy source by early 2025. In the US, the Energy Information Administration (EIA) expects clean energy deployment to grow by 17% in 2024, potentially reaching 42 GW and accounting for nearly a quarter of the nation’s electricity generation. However, this expansion might come with a temporary rise in clean energy costs due to higher financing, labor, and land expenses.
Despite these cost challenges, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are expected to keep solar and wind energy competitive. Solar and energy storage markets are set for further growth, driven by these tax incentives and government support, particularly from the Department of Energy’s (DOE) Loans Program Office. On the other hand, the wind and hydrogen energy sectors may face obstacles, such as higher deployment costs for wind energy and limited government incentive programs for hydrogen development.
Tyler Rosenlicht, Head of Natural Resource Equities, at Cohen & Steers, in an interview to Bloomberg, shared his insights on the future of energy markets, emphasizing the growth of renewable and clean energy sources. According to Rosenlicht, the energy landscape is diversifying, with natural gas, nuclear, and alternatives gaining prominence alongside oil. He noted that while oil remains a significant driver of production and energy supply, its dominance is diminishing. The increasing demand for energy to power technological advancements, urbanization, and travel is driving the growth of other energy sources.
Rosenlicht highlighted the importance of considering the broader energy landscape, beyond just oil, to understand the changing dynamics of the market. He emphasized that the energy intensity of the global economy is becoming more complex, with technological growth leading to increased energy consumption.
In the context of renewable energy, Rosenlicht expressed his bullishness on companies building electrification assets and infrastructure to satisfy growing electricity demand. He specifically mentioned companies that construct transmission wires, trains, and mission lines as potential investment opportunities. Furthermore, Rosenlicht emphasized the significance of nuclear energy in the long run, citing the need to refurbish existing nuclear assets and build new ones globally to meet the demand for low-carbon energy. He also highlighted the potential of integrated energy companies that are pursuing the energy transition using their existing infrastructure and assets.
On the traditional energy side, Rosenlicht expressed his liking for U.S. natural gas, citing the growing demand for LNG exports to global consumers and the expected curtailment of supply in the next few years. Rosenlicht acknowledges that the energy market is undergoing a significant transformation, with renewable and clean energy sources gaining traction. As an investor, he is optimistic about the prospects of companies involved in building the infrastructure and assets necessary to support this transition.
The clean energy sector is well-positioned for substantial growth, driven by rising environmental awareness, supportive regulations, and technological advancements in wind, solar, and hydropower. While the industry does face challenges like high upfront costs and technological barriers, the overall outlook remains optimistic. With that in context here are the 8 most promising clean energy stocks according to hedge funds.
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Our Methodology
For this article, we scanned Clean Energy ETFs plus online rankings to compile an initial list of 50 clean energy stocks. From that list, we narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Promising Clean Energy Stocks According to Hedge Funds
8. Sunrun (NASDAQ:RUN)
Number of Hedge Fund Holders: 35
Sunrun (NASDAQ:RUN) is one of the largest solar energy companies in the United States, offering a solar-as-a-service solution that enables homeowners to adopt solar power with little or no upfront cost. This model makes solar energy more accessible to a wide range of customers.
In Q2, Sunrun (NASDAQ:RUN) reported a 14.33% increase in revenue, reaching $523.87 million, while net income surged by 258.37% to $139.07 million. The company’s net profit margin rose to 26.55%, a significant 179.75% improvement compared to the same period last year. Sunrun’s (NASDAQ:RUN) multi-channel strategy, including direct-to-consumer sales and strategic partnerships, allows it to effectively reach a broad customer base. This diversified approach not only boosts customer acquisition but also strengthens its brand presence in a highly competitive market. The company primarily focuses on lease agreements and power purchase agreements (PPAs) which provide stable and predictable pricing by tailoring solutions for individual homes.
Sunrun’s (NASDAQ:RUN) integrated platform, which collaborates with sales and installation firms, enhances operational efficiency, enabling the company to scale rapidly and maintain a leading position in the residential solar market. The growing adoption of energy storage solutions is further boosting the company’s prospects, as more homeowners seek to combine solar power with battery storage, creating opportunities for substantial annual recurring revenues. Additionally, Sunrun (NASDAQ:RUN) is investing in infrastructure and technology to enhance margins and profitability as it scales its operations and optimizes its business model.
7. Clearway Energy (NYSE:CWEN)
Number of Hedge Fund Holders: 38
Clearway Energy (NYSE:CWEN) owns a diverse portfolio of wind, solar, and traditional power generation projects across the United States. Clearway Energy (NYSE:CWEN) has partnered with Global Infrastructure Partners (GIP), an independent infrastructure investment fund, and TotalEnergies (EPA:TTE), a multinational energy and petroleum company, to leverage their expertise in expanding clean energy capabilities in the US.
Clearway Energy (NYSE:CWEN) is actively developing large-scale clean energy projects, including the Luna Valley and Daggett I projects in California, both of which are expected to be completed by 2025. The Daggett Storage I Project is a 113.5 MW battery storage facility in San Bernardino County, part of a larger 482 MW solar and 394 MW storage complex. Meanwhile, the Luna Valley Solar Project in Fresno County is a 200 MW solar facility that will generate enough electricity to power over 80,000 homes once completed.
These projects are backed by long-term contracts with investment-grade entities, ensuring stable and predictable earnings. Clearway Energy’s (NYSE:CWEN) diversified portfolio and strategic focus on clean energy assets position it well to capitalize on the global transition toward clean energy, offering significant long-term growth potential.
6. Enphase Energy (NASDAQ:ENPH)
Number of Hedge Fund Holders: 42
Enphase Energy (NASDAQ:ENPH) is a global energy technology company specializing in solar microinverters, energy storage solutions, and energy management devices. Its microinverters convert direct current (DC) from solar panels into alternating current (AC), playing a critical role in optimizing solar energy systems by enhancing efficiency and reliability, while also being easy to install. Enphase Energy (NASDAQ:ENPH) is a market leader in residential solar across the U.S., Europe, and emerging markets in Asia.
The company is strategically positioned to benefit from the U.S. Inflation Reduction Act (IRA), as its microinverters can help customers qualify for a 10% Investment Tax Credit (ITC) under the Domestic Content Bonus Credit provisions. This advantage is expected to boost sales and improve gross margins, particularly in Q4.
In Q2, Enphase Energy (NASDAQ:ENPH) reported revenue and earnings slightly below expectations due to lower sales in Europe, though it maintained a strong gross margin of 47.1%, surpassing forecasts. Despite competition, Enphase Energy’s (NASDAQ:ENPH) microinverter technology remains a top choice among consumers and continues to capture market share.
The new “Net Energy Metering 3.0” policy in California, which incentivizes homeowners to use their solar energy instead of selling it back to the grid, has led to a significant increase in demand for Enphase Energy’s (NASDAQ:ENPH) energy storage systems. The company saw a 32% increase in U.S. revenue in Q2 and has already secured 85% of its projected revenue for Q3.
Enphase Energy’s (NASDAQ:ENPH) suite of products, including micro-inverters, energy management software, and battery storage solutions, is expected to drive continued growth in the years ahead. Industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $126.60, which implies a 22.52% increase from its current level.
5. PG&E (NYSE:PCG)
Number of Hedge Fund Holders: 46
PG&E (NYSE:PCG) is a leading energy company serving Northern and Central California through its subsidiary, Pacific Gas & Electric Company, providing electricity to over 16 million people. In 2023, PG&E (NYSE:PCG) achieved 100% clean electricity generation, sourced from a diverse energy mix: 53% from nuclear power, 34% from clean resources like solar and wind, and 13% from large hydroelectric power. The company has also made significant investments in battery storage, adding over 2,100 megawatts of capacity to support its clean energy initiatives.
California leads the U.S. in data center capacity and has the highest per capita electric vehicle ownership, with over 1.1 million EVs and more than 15,000 charging stations. PG&E’s (NYSE:PCG) strong presence in California, particularly in Silicon Valley, positions it as a key energy provider for the region’s growing data center industry. The company has a top-tier fiber network and a grid powered mostly by clean energy and plays a vital role in supporting the tech industry’s energy needs. According to CEO Patti Pope, the company’s grid is currently underutilized, operating at 45% capacity, but advancements in modern computing are expected to increase utilization to 80% by 2040, potentially doubling power demand
PG&E (NYSE:PCG) is well-positioned to benefit from the rising energy demand driven by the electric vehicle and artificial intelligence sectors. The company is anticipated to experience 10% earnings growth this year. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $22.27 that suggests a 12.6% upside potential from its current levels.
4. First Solar (NASDAQ:FSLR)
Number of Hedge Fund Holders: 66
First Solar (NASDAQ:FSLR) is one of the largest solar companies in the United States, specializing in the supply of thin-film photovoltaic (PV) solar panels to large-scale solar power plants. The company also operates manufacturing facilities in Malaysia and Vietnam.
In Q2, First Solar (NASDAQ:FSLR) reported a 24.7% increase in revenue, reaching $1.01 billion, while EBITDA surged by 95% year-over-year to $470 million, driven by higher selling prices and improved gross margins. The company’s gross margin hit an impressive 49.4%. With strong demand for its products, First Solar (NASDAQ:FSLR) has an order backlog extending through 2030.
First Solar (NASDAQ:FSLR) is expanding its production capacity, having recently completed an expansion of its Ohio plant, and is constructing new facilities in Louisiana and Alabama, which are expected to nearly double its U.S. production capacity to meet growing domestic demand for solar energy.
First Solar (NASDAQ:FSLR) is also in the process of patenting its TOPCon technology, which aims to enhance the efficiency of its solar panels. The royalties from this patent could provide an additional revenue stream, bolstering the company’s financial position. First Solar (NASDAQ:FSLR) is expected to grow its earnings by nearly 54.7% this year. Industry analysts have a consensus Buy rating on First Solar’s (NASDAQ:FSLR) stock, with an average price target of $295.29, representing a 33.07% upside potential from current levels.
3. Constellation Energy (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Constellation Energy (NASDAQ:CEG) supplies natural gas, energy products, and services to residential, commercial, and industrial clients across North America. As a major player in nuclear power, Constellation Energy (NASDAQ:CEG) contributes 10% of the total carbon-free energy consumed in the United States.
On September 20, Constellation Energy (NASDAQ:CEG) announced a 20-year power purchase agreement with Microsoft, under which the tech giant will acquire a significant amount of energy from the renewed plant to power its data centers. This milestone is being made possible through the launch of the Crane Clean Energy Center (CCEC) and the planned restart of the Three Mile Island Unit 1 nuclear reactor, which was shut down in 2019 for economic reasons. As a result of this agreement, approximately 835 megawatts of carbon-free energy will be added to the grid, contributing significantly to a cleaner and more sustainable energy mix. The CCEC is expected to become operational by 2028.
In the first quarter, Constellation Energy (NASDAQ:CEG) issued a $900 million, 30-year corporate green bond to fund initiatives like nuclear upgrades, clean hydrogen production, and energy storage systems, further supporting the generation of carbon-free energy. Constellation (NASDAQ:CEG) has secured long-term contracts for the sale of sustainable energy with major tech companies like Microsoft, Google, and Nucor Steel, providing a stable revenue stream.
2. NextEra Energy (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy (NYSE:NEE) is the world’s largest producer of wind and solar energy and a leader in battery storage technology. NextEra Energy’s (NYSE:NEE) operations are divided into two primary businesses. The first is Florida Power & Light (FPL), an electric utility company. The second is NextEra Resources (NEER), one of the world’s largest producers of clean energy and a leader in battery storage. NEER focuses on developing, constructing, and operating long-term clean energy assets, primarily in the United States and Canada.
With over two decades of experience in clean energy projects, NextEra Energy (NYSE:NEE) has a significant competitive advantage. In 2022, the company held 56% of the wind energy market and 38% of the clean market share from 2019 to 2022. NEER operates a clean energy portfolio of approximately 34 GW, which includes 24 GW from wind, 7 GW from solar, and 2 GW from nuclear energy. NEER also has 1 GW of battery storage capacity across 16 U.S. states.
Nearly 93% of the company’s revenues come from long-term Power Purchase Agreements with data centers and tech companies, providing stable and predictable cash flows. NextEra Energy’s (NYSE:NEE) financial performance remains strong, with adjusted earnings increasing by 10.8% in Q2, driven by investments and a growing clean portfolio. Looking ahead, the company expects its earnings per share (EPS) to grow by 6-8% annually through 2027 and plans to increase dividend payments by 10% annually. Analysts forecast that the company’s earnings will rise by 7.29% in the current year.
1. Vistra (NYSE:VST)
Number of Hedge Fund Holders: 93
Vistra (NYSE:VST) is a vertically integrated energy company based in Texas, with a diversified energy portfolio that spans electricity generation, wholesale energy sales, fuel production, and logistics. The company supplies electricity and natural gas to residential, commercial, and industrial customers. In addition to these services, Vistra (NYSE:VST) operates battery energy storage facilities, and its nuclear assets are crucial in supplying power for artificial intelligence (AI) applications.
As the demand for clean energy grows, particularly from AI and data centers, Vistra (NYSE:VST) is well-positioned to capitalize on this trend. In March, the company completed its acquisition of Energy Harbor, expanding its nuclear capabilities by an additional 4,000 megawatts and adding around 1 million retail customers to its portfolio.
Vistra (NYSE:VST) has also integrated AI technologies into its operations, boosting the efficiency of its power plants, improving thermal performance, and reducing carbon emissions. The Heat Rate Optimizer (HRO) was implemented in nearly 67 power-generation units across 26 plants, resulting in an average 1% increase in efficiency and saving the company millions in operational costs.
For the quarter ending June 30, Vistra’s (NYSE:VST) net income from core operations rose to $492 million, up from $409 million the previous year. The company’s Adjusted EBITDA also surged by 40%, reaching $1.41 billion compared to $1.0 billion in the same quarter the prior year.
Vistra (NYSE:VST) is a strong contender for data centers in need of reliable, clean energy solutions. Its strategic investments in clean energy, coupled with its ability to leverage AI and capitalize on market trends, present a compelling opportunity for investors seeking to benefit from the ongoing shift in the energy landscape. The company’s earnings are expected to surge by 29.52% in the current year. Industry analysts are bullish on Vistra’s (NYSE:VST) stock price and have a consensus Buy rating at a target price of $136.18, which implies an 8.33% increase from its current level.
While we acknowledge the potential of Vistra (NYSE:VST) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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