With a market capitalization of over $23 billion, First Solar Inc. (NASDAQ: FSLR) is the biggest solar company in the U.S., where it has notched success with its low-cost and easily scalable Cadmium Telluride (CdTe)-based solar panel technology.

However, in late October 2024, the firm posted disappointing fiscal results for the third quarter, including both top- and bottom-line declines relative to the prior quarter. The drop in net sales to $0.9 billion from $1.0 billion and in earnings per diluted share to $2.91 from $3.25 was accompanied by a reduction in full-year net guidance on net sales, gross margin, net cash balance, and other metrics.

FSLR shares dipped marginally following the earnings release but remain up nearly 47% in the last year. As the Biden administration, which implemented the pro-solar Inflation Reduction Act, prepares to transfer power to the Trump administration in January, investors may question whether First Solar has the fundamentals to thrive, regardless of the regulatory landscape in 2025 and beyond.

Solar Continues to Up Capacity Despite Nuclear Focus

Most recently, energy demand from the booming AI and cloud computing spaces has prompted a shift in focus toward nuclear energy as a top contender in the green energy race. At the same time, the solar industry has been bogged down for multiple quarters with increases in component costs thanks to inflation, suppressed customer demand due to high interest rates, and similar issues.

However, investors should recognize that, despite these headwinds (some of which, including inflation and high rates, have already begun to dissipate), the solar industry is continuing to grow rapidly. In the second quarter, domestic module manufacturing capacity increased by nearly 50% to 31.3 GW. Installations in the U.S. increased 29% year-over-year for the quarter to a record-setting 9.4 GW of capacity. Increases were driven primarily by utility-scale installations as the residential, commercial, and community solar segments declined.

Uncertain Regulatory Environment

Though it remains to be seen how a second Trump presidency will impact the green energy sector, the new administration will likely focus efforts on oil and gas rather than sustainable energy options. The MAC Global Solar Energy Index, a benchmark for the broader solar industry, fell by more than 10% the day after the presidential election.

However, analysts suggest that the subsidies for solar energy included in the Inflation Reduction Act may continue into a new presidency, thanks to widespread support in several Republican-led states. There may also be a surge in grant funding related to the Act in the final two months of Biden's presidency, which could give solar stocks like SolarEdge Technologies Inc. (NASDAQ: SEDG) and Enphase Energy Inc. (NASDAQ: ENPH) a short-term boost.

It's also possible that other priorities in the Trump administration could negatively impact solar firms, such as prioritizing federal lands and waters for fossil fuel projects over wind or solar alternatives.

Aside from regulatory measures impacting the energy industry, trade and tariffs could also impact First Solar's business. Many solar companies source components from Asia, a practice that has occasionally led to supply chain issues and problems synchronizing with demand. If the Trump administration institutes sweeping tariffs as expected, First Solar may face significant cost increases or be forced to speed up its transition to manufacturing components in the U.S.

Major Upside Potential for FSLR

Despite late-October target price cuts by analysts at Bank of America and Morgan Stanley, analysts are still generally optimistic about First Solar's prospects. Analysts have projected earnings growth of almost 57%, and shares of FSLR still maintain a consensus price target of $281.13, for a potential upside of almost 43% compared to current levels.

First Solar's forward P/E ratio of 14.8 is lower than that of green energy competitors like Enphase and NextEra Energy Inc. (NYSE: NEE). Still, in a tumultuous political moment that could have broad implications for the solar industry, investors also have reasons to be cautious before entering a new position in a company like First Solar.