What happened

Shares of SolarEdge Technologies (NASDAQ:SEDG) are up 12.3% at 12:41 p.m. EDT on May 6, following the first-quarter earnings release from Enphase Energy (NASDAQ:ENPH) yesterday afternoon. Enphase reported sales more than doubled in the first quarter, and even with an expected big sequential decline in the second quarter, the company still expects sales to come in close to the $134 million it generated in last year's second quarter. 

So what

SolarEdge and Enphase are in a unique position right now, as the two main suppliers of power electronics for solar panels used in commercial and residential distributed solar installations in the U.S. and a few other parts of the world. They have established a massive head start over the competition, meeting key U.S. electrical code requirements that have pushed other manufacturers to exit the U.S. market completely for now. 

Solar panels next to a parking garage

Image source: Getty Images.

Consequently, both SolarEdge and Enphase have been growing like crazy. Enphase reported first-quarter sales more than doubled and profits increased 25-fold, even factoring in a massive drop in sales late in the quarter as mandatory stay-at-home orders forced solar installers to cease operations in many states. 

Now what

Today's surge in SolarEdge stock on Enphase's earnings report looks like it's being driven by a few things. First, it's likely that investors are pleasantly surprised that Enphase is projecting sales will hold up as well as guidance suggests, and with many U.S. states starting to slowly open back up, there's more reason to expect that guidance could prove conservative. 

Moreover, Enphase and SolarEdge both have a strong margin of safety against even a protracted downturn on their balance sheets. SolarEdge had more than $320 million in cash and only $16 million in debt at the end of 2019, and there's a good chance its cash balance will be higher when it reports its first-quarter results. 

But it's not just buyers looking for a profit rushing to buy SolarEdge stock right now -- it's likely a lot of today's buyers are short-sellers looking to close or reduce their exposure before SolarEdge reports its own first-quarter earnings later today. At last count, more than 12% of SolarEdge shares were sold short following an attack launched last fall against the company by a noted short-seller. 

So you have a combination of shorts getting out and some buyers looking to get in, driving SolarEdge shares higher today. Whether the company's results merit today's response will only become apparent once SolarEdge reports later today. But even if the results aren't as pleasing as Enphase's, the company is still very well positioned to remain a leader in supplying the solar industry for years to come. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.