Morgan Stanley Downgrades First Solar as Solar Pricing Recovery Falters

Morgan Stanley has reduced its price target for First Solar (FSLR) to $110 per share, down from $135, citing a deceleration in the expected rebound of solar module prices. The firm notes that average selling prices for residential and commercial solar panels have risen only modestly over the past quarter, with recent data showing a 2.3% sequential increase—well below the 5% to 6% gains seen in late 2024. This sluggish recovery contrasts with earlier expectations of stronger margin improvement driven by demand resilience and supply constraints. The slowdown is attributed to sustained oversupply in the global solar manufacturing sector, particularly in China, where production capacity expansion has outpaced installation rates. First Solar’s Q4 2025 financials reported a 14% year-over-year decline in gross margins, falling to 18.2%, despite a 7% increase in revenue. The company’s U.S.-based manufacturing operations have not yet offset the downward pressure from international competition and inventory glut. The downgrade impacts not only FSLR but also related equities in the clean energy space. The broader XLK index has seen a 1.4% decline over the past five trading sessions, with solar-focused components such as Enphase Energy (ENPH) and SolarEdge (SEDG) also posting underperformance. Meanwhile, the CL=F crude oil benchmark has remained stable, suggesting the headwinds are sector-specific rather than macro-driven. Investors are now reassessing near-term growth assumptions for domestic solar installers, particularly those reliant on government incentives like the Inflation Reduction Act. The shift in sentiment underscores the growing complexity of balancing scale, pricing power, and supply chain efficiency in the renewable transition.