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The recent sell-off in renewable energy stocks might be an opportunity to get in cheap, analysts at UBS said this week.
They wrote in a note on Thursday that US and EU renewables have jumped to their top-ranking stock theme in recent weeks after the sector saw steep losses in the wake of Donald Trump's election win.
Now, with a cheap point of entry and huge and growing demand for power, it might be time to jump into the space, the analysts said.
"The environment of an unrelenting power demand shock puts just about every source of power generation in a solid position to capitalize. Against a backdrop where positioning was not overweight, it seems the sentiment-driven downdraft presents an attractive entry point," the analysts said in a Wednesday note.
The analysts said their optimism about surging power demand comes from rapid growth in AI and data center buildouts to power the technology. Data centers need a huge amount of power to operate, and their electricity demand is set to exceed supply in just two years, according to a recent estimate from Bernstein Research.
The analysts suggested that data centers' outsized power needs mean they will likely need energy from all available sourcs, including renewables.
"The rapid growth in AI and the subsequent Data Center buildout have resulted in an unrelenting demand for increased power generation. This, combined with continued emphasis on the importance of low-carbon solutions from Hyperscalers should pave the way for continued growth in Renewables," they said.
The analysts' call comes as Trump's win has sent clean energy shares tumbling, even as much of the rest of the market has surged on the promise of lower taxes and less regulation. Stocks like Plug Power and Enphase Energy have shed over 24% since the election, while SolarEdge Technologies has plunged 42%.
The President-elect, who said he wants to "drill baby, drill," is expected to scale back many of the Biden administration's clean-energy initiatives, including billions of dollars in solar and wind subsidies that were part of the Inflation Reduction Act.
But the analysts said that investors' worst fears about the sector likely won't be realized. Companies using Biden-era subsidies could "grandfather" in support at the start of construction rather than risk losing it during a project, and states will likely continue to aim for lower emissions, they say.
"We think that the concerns are overdone. In the view of our US utilities analyst, growth in renewables is likely to continue (solar installs were +50% in Trump's last term, compared to the previous 4 years) driven by state and corporate emission goals," the analysts said.
Within the sector, the analysts said names poised for gains include US renewables stocks like NextEra and Generac, plus European stocks like Iberdrola, Siemens Energy, EDP, and developers like Ørsted and RWE.
