Surging energy demand from data centers, electrification, and manufacturing reshoring is driving a new wave of investment in power production in the U.S. Nextracker (NXT +2.41%) stands to benefit.
The solar-tracking system leader got better-than-expected news earlier this year amid regulatory uncertainty. With a record backlog and a resilient supply chain, Nextracker appears well-positioned to contribute to addressing that growing demand for electricity. But is the stock a buy today?
NASDAQ: NXT
Key Data Points
Nextracker holds a strong market position in the solar industry
Nextracker provides integrated solar tracking systems and related solutions for solar projects across the world. Its primary product is a pivoting base that enables solar panels to follow the sun's movement across the sky, optimizing performance and getting the most energy out of daylight. Panels mounted on its single-axis solar trackers can generate up to 25% more energy than non-tracking solar panels.
Nextracker is the top tracker provider in the world, with leading positions in North America and Latin America, and a 26% global market share.
From this position of competitive strength, Nextracker is evolving from a single product supplier into a diversified solar power platform company. It's doing so by acquiring and developing adjacent technologies, which will allow it to lower costs for customers and accelerate construction timelines. Management believes its non-tracker products and services sales could grow to provide more than one-third of the company's total revenue in the next five years.
Investors got more regulatory clarity
When the "One Big Beautiful Bill" was first introduced in Congress, solar investors were nervous about the mixed signals it sent on energy policy. On the one hand, it offered major infrastructure and industrial incentives, but on the other, it seemed fossil fuels might benefit more from tax breaks and regulatory relief.
When the final details came out, the bill turned out to be "better than feared" for the solar industry, according to JPMorgan analyst Mark Strouse. Some key aspects of previously established law that supported solar energy were left intact, including some investment tax credits. That said, Congress and the president did sharply curtail the duration and accessibility of some of those clean energy tax credits and incentives, and added new compliance hurdles for companies that want to make use of them.
Image source: Getty Images.
Growing demand for energy could be a tailwind for Nextracker
Nextracker's opportunity will come from the growing demand for clean energy to power tomorrow's technologies. While many hyperscalers and investors have focused on nuclear power, which is coming back into favor, Nextracker's solar power solutions could benefit as companies seek a variety of carbon-neutral solutions to meet their growing energy needs.
According to the International Energy Agency(IEA), solar power is on track to become the largest source of renewable electricity worldwide in just a few years. Not only does it provide clean energy at competitive prices, but solar arrays can be deployed quickly compared to other energy sources, meeting demand in the near term -- not five years from now.
Improvements in energy storage systems and their widening use could be a massive tailwind for Nextracker as well. Management describes solar and storage as an "unbeatable" combination. That optimistic view is well founded. In the company's fiscal second quarter (which ended Sept. 26), its backlog -- signed customer orders for its solar tracking systems and related technologies awaiting fulfillment -- reached a record $5 billion.
That deep backlog and the company's large project portfolio provide it with revenue visibility and reduce the uncertainty it faces due to the current U.S. policy backdrop. Management noted that a high percentage of projects in its U.S. backlog have safe harbor status that locks in their eligibility for key tax credits and incentives under the Inflation Reduction Act.
Is Nextracker a buy?
Energy demand is on the rise, and Nextracker is a stock that may be overlooked in this sector. With a forward-price-to-earnings ratio of 21, the stock appears reasonably priced, particularly when compared to some other alternative energy providers that are trading at sky-high valuations.
Nextracker remains vulnerable in the current political landscape, especially given that some tax credits and incentives intended to support clean energy have been curtailed. That said, Nextracker continues to provide solutions that help address America's growing energy demands, and its fair valuation provides investors with some cushion, which is why I think it could be a good stock buy today.
