Why SolarEdge (SEDG) And Shoals (SHLS) Are Climbing

SolarEdge (SEDG) stock is soaring 15% today. The shares appear to be rallying due to residual momentum from a rare double upgrade of the shares by Goldman Sachs earlier this week. Meanwhile, another name in the sector, Shoals (SHLS), is also rising sharply today after it was upgraded by Morgan Stanley on Tuesday.

SolarEdge manufactures solar inverters that convert power from solar panels into usable electricity, while Shoals develops and markets electrical balance of systems that enable the safe and efficient transportation of electricity from the solar panels to their destinations.

A photovoltaic field at dawn, its solar panels shimmering in the light of a new day.

On Dec. 17, Goldman Sachs raised its rating on SolarEdge to Buy from Sell. Moreover, the investment bank hiked its price target on the shares to $19 from $10. According to Goldman, the risk-reward ratio of SEDG stock is positive. That’s because worries about the company’s ability to make $350 million of debt payments in 2025 are overdone, according to the bank.

Moreover, SolarEdge’s cost-cutting efforts and more favorable product mix should combine to lift its free cash flow, margins, and bottom line, Goldman believes.

Also importantly, Goldman expects the U.S. and European rooftop solar markets to resume expanding in 2025, and it believes that the utility-scale solar sector could also grow next year. What’s more, the increased demand for electricity in the U.S. may make investors more bullish on solar stocks, according to Goldman.

Also on Dec. 17, Morgan Stanley upgraded Shoals to Overweight from Equal Weight. Writing that SHLS stock had reached “an attractive entry point,” the investment bank predicted that the company’s revenue would increase about 10% in 2025. And from 2024 to 2027, Morgan Stanley predicts that the company’s sales will increase at a compound annual growth rate (CAGR) of 12%.

While we acknowledge the potential of SEDG and SHLS, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SEDG and SHLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: The writer owns shares of SHLS and has no intention of trading them in the next 48 hours. This article is originally published at Insider Monkey.