First Solar: A different solar panel company.

First Solar is one of the leading solar companies in the world and the largest solar panel manufacturer in the Western Hemisphere. Known for its unique thin film solar technology and vertically integrated manufacturing model, the company combines strong product performance with a growing U.S. production footprint and less reliance on Chinese supply chains than many competitors. With expanding factory capacity, a large backlog of orders, and exposure to long term growth trends such as electrification, AI infrastructure, and rising global electricity demand, First Solar aims to strengthen its position in the fast growing renewable energy market while driving long term growth. The question remains: Does this solar leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in First Solar at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of First Solar, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

First Solar was founded in 1999 and has grown into the largest solar module manufacturer in the Western Hemisphere and the global leader in thin-film photovoltaic modules. The company is headquartered in Tempe, Arizona, and operates a highly focused business model centered on the design, manufacture, and sale of solar modules for utility-scale and large commercial solar projects. Unlike most major solar manufacturers that rely on crystalline silicon technology, First Solar has built its business around its proprietary cadmium telluride thin-film platform. This technological distinction is one of the defining features of the company and separates it from the majority of the global solar industry. The company’s core business is the sale of its Series 6 and Series 7 solar modules, which are primarily sold to utilities, independent power producers, system developers, and large corporate energy buyers. By deliberately focusing on the utility-scale market, First Solar avoids the more fragmented and interest-rate-sensitive residential solar segment and instead serves customers that value long-term reliability, high energy output, and suppliers they can trust to support projects over decades. This focused positioning allows the company to align its operations with large-scale infrastructure projects driven by growing electricity demand, data center expansion, industrial electrification, and the global transition toward renewable energy. A defining aspect of First Solar’s business model is its vertically integrated manufacturing process. The company controls the entire production flow from raw materials to finished solar modules, allowing a sheet of glass to enter the production line and be transformed into a completed panel within just a few hours. This differs significantly from the traditional crystalline silicon supply chain, which often involves multiple suppliers and factories across several countries. By controlling every step of the manufacturing process, First Solar benefits from tighter quality control, greater cost efficiency, and the ability to rapidly scale process improvements across its global production footprint. The company currently operates manufacturing facilities in the United States, Malaysia, Vietnam, and India, while continuing to expand domestic production capacity in the United States. Another important element of the business model is the performance profile of its cadmium telluride modules. These modules typically perform better than conventional silicon panels in hot, humid, or partially shaded conditions because they maintain performance better in high temperatures, perform well in humid environments, and are more resistant to cell cracking. This often results in stronger real-world energy production over the lifetime of a solar project, even when silicon modules may appear similar based on their stated power output. Sustainability is also deeply embedded in First Solar’s business model. Its thin-film technology uses significantly less semiconductor material, less water, and less energy in production than traditional silicon modules. In addition, the company operates one of the solar industry’s longest-standing recycling programs, recovering more than 90% of materials from decommissioned modules and reinforcing its positioning as a responsible solar technology provider. First Solar’s competitive moat is primarily built on its proprietary thin-film technology, vertically integrated manufacturing, reduced reliance on Chinese supply chains, and strong relationships with utility-scale solar developers. The most important part of First Solar’s moat is its proprietary technology platform. While the majority of the industry competes using crystalline silicon technology, First Solar has spent more than two decades building expertise in cadmium telluride thin-film modules. This creates a significant technological barrier to entry because competitors cannot easily replicate the company’s accumulated research, manufacturing know-how, process optimization, and performance data. The company has invested more than $2 billion in research and development over the past 20 years, which has helped it continuously improve efficiency, durability, and manufacturing throughput. This long history of innovation gives First Solar a strong position within its niche and makes it extremely difficult for new entrants to challenge its leadership in thin-film solar. Another major competitive advantage lies in its reduced reliance on Chinese supply chains. Unlike most global solar manufacturers, First Solar does not rely on the Chinese-dominated polysilicon, ingot, and wafer supply chain. This has become an increasingly important advantage as customers seek sourcing alternatives and as trade policies and regulations continue to evolve. For utilities and developers looking for high U.S. content and a supply chain less exposed to geopolitical risk, First Solar’s manufacturing footprint and proprietary technology provide a strategic advantage that many competitors cannot match. Its vertically integrated manufacturing model further strengthens the moat. By controlling the entire production process, First Solar benefits from economies of scale, tight quality control, and cost efficiencies that smaller competitors struggle to replicate. Vertical integration also allows the company to move quickly from research breakthroughs to commercial production, which supports continuous product improvements and margin resilience. This ability to rapidly scale innovation across identical or near-identical production lines creates an operational advantage that compounds over time. Finally, First Solar benefits from a strong customer and ecosystem moat within utility-scale solar. Large utilities, infrastructure investors, and independent power producers often prefer financially stable suppliers that can provide long-term warranties and proven field performance. First Solar’s strong balance sheet, long operating history, and reputation for reliability make it a preferred partner for large-scale projects that are expected to operate for decades. Once embedded in customer project pipelines, repeat orders and long-term relationships become more likely, reinforcing the company’s market position. The combination of proprietary technology, manufacturing scale, reduced reliance on Chinese supply chains, and trusted customer relationships creates a durable competitive moat that is difficult for most competitors to replicate.

Management

Mark Widmar serves as the CEO of First Solar, a position he has held since 2016 after previously joining the company in 2011 as CFO. His appointment to the top role came at an important time for the company as the global solar industry was becoming increasingly competitive and cost driven. With a strong background in finance, operational discipline, and large-scale manufacturing businesses, Mark Widmar has played a central role in shaping First Solar into the leading solar module manufacturer in the Western Hemisphere and the global leader in thin-film photovoltaic technology. His leadership has been closely tied to the company’s focus on operational efficiency, disciplined capital allocation, and strategic expansion of its domestic manufacturing footprint. Before becoming CEO, Mark Widmar served as CFO of First Solar, where he was responsible for the company’s financial strategy, capital structure, and long-term investment planning. In this role, he helped strengthen the company’s balance sheet and improve its financial flexibility during a period marked by significant volatility in global solar pricing and intense competition from silicon-based manufacturers. His experience as CFO gave him a deep understanding of the economics of solar manufacturing, including cost competitiveness, capacity expansion, and returns on invested capital, which continues to influence his leadership approach as CEO. Prior to joining First Solar, Mark Widmar served as CFO of GrafTech International Ltd., a global manufacturer of advanced carbon and graphite materials. Earlier in his career, he held several senior finance and operating roles at major multinational companies, including NCR, where he served as Corporate Controller and Business Unit CFO, as well as Dell, where he worked as a Division Controller. He also held leadership roles at Lucent Technologies, AlliedSignal, and Bristol Myers Squibb. Mark Widmar began his career in 1987 as an accountant at Ernst & Young. This broad experience across technology, industrial manufacturing, and financial leadership has given him a strong foundation in cost management, process optimization, and large-scale operations. Mark Widmar holds a Bachelor of Science in Business Accounting and an MBA from Indiana University. Since becoming CEO, Mark Widmar has maintained a clear strategic focus on First Solar’s core strengths. One of the most important strategic decisions under his leadership was the sharpening of the company’s focus on module manufacturing and technology leadership. This included divesting non-core activities such as the North American operations and maintenance business in order to concentrate capital and management attention on manufacturing scale, research and development, and module innovation. This disciplined focus reflects a leadership style centered on doing fewer things exceptionally well rather than pursuing diversification for its own sake. Mark Widmar has also been highly focused on cost competitiveness, recognizing that price remains one of the key factors influencing customer decisions in the solar industry. Under his leadership, First Solar has continued to improve manufacturing throughput, module efficiency, and operational scale while expanding domestic capacity in the United States. At the same time, he has consistently emphasized the company’s technological differentiation through its cadmium telluride platform, positioning it as a strong alternative to crystalline silicon modules, particularly in hot and humid environments where performance advantages become more visible. Another defining aspect of Mark Widmar’s leadership has been his emphasis on supply chain integrity and ethical manufacturing practices. He has been outspoken about concerns surrounding the global polysilicon supply chain, particularly with regard to transparency and allegations of forced labor. Under his leadership, First Solar has positioned its vertically integrated thin-film manufacturing model not only as a technological advantage but also as a transparent and responsible sourcing alternative. This strengthens the company’s value proposition at a time when customers, regulators, and investors are increasingly focused on traceability and responsible sourcing. Beyond operational execution, Mark Widmar has demonstrated strong capital discipline and long-term strategic thinking. His financial background has supported a measured approach to expansion, allowing First Solar to invest aggressively in manufacturing capacity while maintaining a strong balance sheet and preserving strategic flexibility. This combination of operational focus, financial discipline, and ethical leadership appears well aligned with First Solar’s long-term ambitions. Given his deep experience in finance, industrial operations, and strategic execution, Mark Widmar appears well suited to guide First Solar through its next phase of growth. His emphasis on cost competitiveness, manufacturing scale, and supply chain integrity aligns closely with the company’s core strengths and supports its ambition to remain one of the most differentiated businesses in the global solar industry.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. First Solar’s historical ROIC has been much more volatile than what we typically like to see, with returns ranging from negative levels in 2022 to more than 15% in 2024 and 2025. Over most of the past decade, the numbers have been underwhelming, as the company only consistently moved above the 10% threshold in the most recent three years. However, the recent improvement is highly encouraging because it suggests that the economics of the business have changed meaningfully rather than this simply being a one year anomaly. The sharp increase from negative 4,1% in 2022 to 12,0% in 2023, followed by 15,8% in 2024 and 15,4% in 2025, reflects a combination of structural and temporary tailwinds. The most important reason for the higher ROIC over the past three years is the manufacturing tax credits tied to domestic clean energy production in the United States. These credits have significantly boosted First Solar’s earnings and are a major reason why returns on invested capital moved above 10%. In other words, part of the improvement reflects government support rather than a pure change in the underlying profitability of the business. That said, the company’s profitability has also improved as production volumes have increased and newer factories have started contributing more meaningfully. Higher production allows First Solar to spread its fixed costs across more modules, which supports stronger margins. However, it is important to recognize that the tax credits have likely been the single biggest driver of the recent step up in ROIC. Another important factor is the company’s increased scale. First Solar has expanded its manufacturing capacity significantly, particularly in the United States, and higher production volumes have helped improve efficiency. Solar manufacturing is a business with meaningful fixed costs, so when more modules are produced and sold, earnings can grow faster than costs. This improvement in scale has supported stronger returns over the past three years. A third factor is the company’s stronger competitive position. First Solar’s differentiated thin film technology and reduced reliance on Chinese supply chains have become more valuable in recent years as developers increasingly seek domestic content and alternatives to traditional silicon modules. This has likely supported stronger pricing and a better sales mix, especially in utility scale projects where long term reliability and domestic sourcing matter. Better pricing combined with higher factory utilization naturally lifts returns on capital. It is also worth mentioning that some of the improvement has likely been helped by one off items such as termination payments from customers that exited contracts. These payments temporarily increase earnings without requiring additional investment, which can boost ROIC in the short term. This means the recent figures may slightly overstate the underlying earning power of the business. Looking ahead, I do believe First Solar can continue generating ROIC above 10%, although I would not necessarily expect it to remain around 15% indefinitely. The structural drivers behind the stronger returns remain in place. The company continues to expand domestic manufacturing capacity, benefits from a differentiated technology platform, and is well positioned to serve growing electricity demand driven by data centers, industrial electrification, and renewable energy investments. These factors should continue to support solid returns. That said, I would be somewhat cautious about assuming that ROIC will stay at the current elevated level over the long term. A significant part of the recent strength is tied to tax incentives, and the long term continuation of these benefits depends on future policy decisions. In addition, as First Solar continues to invest heavily in new factories, the capital base will increase significantly. New facilities often take time to ramp up efficiently, which can temporarily put pressure on returns. If earnings do not grow at the same pace as the company’s investments, ROIC could normalize somewhat from current levels.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. First Solar’s equity development has been somewhat uneven over the past decade. In many of the earlier years, equity declined or remained relatively flat, while the past few years have shown a much stronger upward trend. This shift is encouraging and reflects a meaningful improvement in the company’s financial position. Unlike some companies where declining equity is caused by large share buyback programs, that is generally not the main explanation here. Instead, the earlier weakness was more closely tied to periods of lower profitability, occasional losses, and significant investments in manufacturing capacity that took time to generate returns. One of the main reasons equity was weaker in the earlier years is that First Solar’s earnings were far more volatile. The solar industry has historically been highly cyclical, with pricing pressure, changing subsidy regimes, and strong competition from silicon-based manufacturers affecting profitability. In years where earnings were weak or even negative, retained earnings on the balance sheet naturally came under pressure, which limited equity growth. This is especially visible around periods such as 2022, when returns on capital were negative and profitability was under pressure. The stronger increase in equity over the past few years is largely a result of much higher earnings. As we discussed in the ROIC section, the manufacturing tax credits tied to domestic clean energy production in the United States have significantly boosted First Solar’s profits. Because the company has retained much of these earnings rather than distributing large amounts of capital to shareholders, this has directly supported growth in equity. In simple terms, stronger profits have been added back to the balance sheet, increasing the value that belongs to shareholders. Another important factor is the company’s continued expansion of manufacturing capacity. First Solar has been investing heavily in new production facilities, particularly in the United States. These investments increase the asset base of the company and, over time, can support higher equity as long as the new factories generate attractive returns. The recent growth in equity therefore reflects both stronger earnings and a larger industrial footprint. Looking ahead, I do believe the upward trend in equity can continue, although it may not grow at the same pace as in the past few years. The key reason for recent strong growth has been the sharp improvement in profitability, which has partly been supported by tax credits. As long as earnings remain strong and the company continues to expand production capacity successfully, equity should continue to rise over time. That said, I would be cautious about assuming a straight-line continuation. Part of the recent increase is tied to policy support, and if tax incentives become less favorable in the future, earnings growth could slow. In addition, large investments in new factories can create periods where equity growth temporarily moderates before those facilities begin contributing meaningfully to profits.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share.  First Solar’s free cash flow history looks weak at first glance, as it has only been positive in two out of the past ten years, most recently in 2025. However, this pattern needs to be viewed in the context of the company’s business model and growth strategy, because negative free cash flow in this case has largely been driven by deliberate investments rather than weak underlying operations. One of the main reasons free cash flow has been negative in so many years is the company’s very high level of investments in new manufacturing capacity. First Solar has spent heavily on expanding its production footprint, particularly in the United States, as well as in India and other international markets. Building new factories, installing production lines, and rolling out technology improvements across its facilities requires significant investments. These investments have often been greater than the cash generated from operations, which pushes free cash flow into negative territory. In other words, the company has been prioritizing growth and long term competitive positioning over short term cash generation. Another factor is that First Solar operates in a capital intensive industry. Unlike companies with asset light business models, solar manufacturing requires significant ongoing spending to maintain and expand production capacity. This means that even when the underlying business is profitable, free cash flow can remain negative for extended periods if management is in an aggressive expansion phase. The negative free cash flow over much of the past decade therefore says more about the company’s investment cycle than about the quality of the business itself. The positive free cash flow in 2025 is an encouraging development. One of the main reasons for this improvement is that First Solar is nearing the end of several years of sustained high investment spending tied to capacity growth. Management has indicated that the most intensive phase of factory expansion is beginning to moderate, which naturally supports stronger cash generation. At the same time, higher earnings, supported by stronger production volumes and manufacturing tax credits, have improved cash generated from the core business. This combination of higher earnings and somewhat lower relative investment spending has allowed free cash flow to turn positive. Looking ahead, I do believe positive free cash flow is more likely moving forward than it was in the earlier part of the decade, although it may still fluctuate from year to year. Management expects capital expenditures in 2026 to remain elevated at around $0,8 billion to $1 billion, with about half allocated to further capacity expansion and the remainder going toward research and development, technology replication, and maintenance. This means free cash flow may not move in a straight line upward. Some years may still show weaker cash generation if investment spending rises again. That said, as the current expansion cycle matures and newer factories begin contributing more meaningfully to earnings, I would expect free cash flow to improve structurally over time. The company’s long term growth in production capacity should support stronger cash generation once the largest investment phase is behind it. First Solar primarily uses its free cash flow in four ways. First, management prioritizes maintaining a strong cash reserve to navigate the cyclical nature of the solar industry and to handle temporary imbalances in supply and demand. Second, a large portion of the cash is reinvested into growth through new manufacturing facilities, technology upgrades, and efficiency improvements across existing factories. Third, the company invests in innovation through research and development, including next generation technologies such as perovskite optionality and other targeted investments that strengthen its long term competitive position. Finally, management has stated that once cash generation exceeds these priorities and the current expansion cycle moves closer to completion, excess cash may increasingly be used for share repurchases. This means that in the years ahead, shareholders may begin to benefit more directly from the company’s improved cash generation. The free cash flow yield suggests that the shares are trading at around fair value. However, we will revisit the valuation later in the analysis.

Debt

Another important aspect to investigate is the level of debt, specifically whether a business has manageable debt that can be paid off within a period of three years. We assess this by dividing the total long term debt by earnings. After reviewing First Solar’s financials, I found that the company currently has 0,19 years of earnings in debt. This is significantly below the three year threshold, which means that debt is not a concern when investing in First Solar. In fact, First Solar has historically carried little to no debt, which suggests that debt is unlikely to be a concern going forward.

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Risks

Global oversupply is a risk for First Solar. The global solar industry continues to face intense competition, and one of the biggest risks is that manufacturing capacity grows faster than demand for new solar installations. In recent years, solar module manufacturers, particularly in China, have added substantial new capacity, which has led to a structural imbalance between supply and demand in many markets. When too many modules are available relative to demand, prices typically come under pressure, and this can significantly impact profitability across the industry. For First Solar, this is an important risk because even though the company differentiates itself through its thin film technology and strong position in the United States, it still operates within a global market where pricing is influenced by overall supply conditions. A major part of this risk comes from the rapid expansion of Chinese solar manufacturing capacity. Chinese manufacturers have continued to add significant new production capacity, often supported by government incentives and aggressive pricing strategies. This has contributed to a sharp decline in global solar module prices. In many cases, competitors have been willing to sell modules at very low margins, and sometimes even near or below their manufacturing costs, in order to maintain market share and keep factories running. This creates a difficult environment for manufacturers outside China, as price competition can become detached from normal market economics. For First Solar, global oversupply primarily creates downward pressure on pricing and margins. Even though the company’s main market, the United States, has remained more stable due to domestic manufacturing incentives, tariffs, and restrictions related to foreign entities, the broader global oversupply still matters. Lower global prices can affect customer expectations and purchasing decisions, especially in international markets where trade protections are weaker. Customers may become more price sensitive and less willing to pay a premium for First Solar’s differentiated cadmium telluride technology, even if it offers better performance in certain climates and reduced reliance on Chinese supply chains. Another important point is that this risk is partly structural rather than purely cyclical. In a normal industry cycle, lower prices eventually force weaker competitors to reduce capacity, which helps restore balance between supply and demand. However, in solar, excess capacity can persist for extended periods because some competitors are willing or able to continue operating at minimal or even negative margins. This means pricing pressure can remain in place much longer than investors might initially expect. The risk is particularly relevant for First Solar’s international business. While the company benefits from strong domestic demand in the United States, modules sold into markets outside the U.S. may face more direct competition from lower priced silicon products. In those markets, oversupply can make it harder for First Solar to maintain margins and may reduce the attractiveness of expanding internationally.

The modification, reduction, elimination, or expiration of government subsidies is a risk for First Solar. A large part of the company’s recent growth and profitability has been supported, directly or indirectly, by government policies that encourage solar adoption and domestic manufacturing. While solar energy is becoming increasingly competitive on its own, demand in many markets still depends heavily on tax credits, subsidies, renewable energy targets, and trade protections. If these policies are reduced, removed, or allowed to expire, it could negatively affect demand for First Solar’s modules, pressure pricing, and reduce profitability. One of the most important policy supports for First Solar has been the manufacturing tax credits in the United States. These credits have been a major contributor to the company’s recent improvement in earnings, ROIC, and equity growth. They effectively increase the profitability of producing solar modules domestically, making First Solar’s U.S. manufacturing footprint even more valuable. If these tax credits are reduced or phased out earlier than expected, the company’s earnings could decline meaningfully. This is especially important because part of the recent strength in financial performance has been tied to these incentives rather than solely to improvements in the underlying economics of the business. Government support also plays an important role on the demand side. Solar developers and utilities often rely on tax incentives, investment credits, production credits, and renewable energy mandates when deciding whether a project meets required return thresholds. If these incentives are weakened, fewer projects may move forward, which could reduce demand for First Solar’s modules. In simple terms, if solar projects become less financially attractive for customers, First Solar may face lower sales volumes and weaker pricing power. Another important aspect of this risk is trade policy. First Solar has benefited from tariffs and trade restrictions that make imported solar modules, especially from China and Southeast Asia, less competitive in the U.S. market. These protections help support pricing stability in First Solar’s primary market. If tariffs are reduced, removed, or not effectively enforced, lower-priced imported modules could put significant pressure on pricing and margins. Because many global competitors operate at lower costs or are willing to accept lower margins, any weakening of trade protections could make competition more intense. This risk also extends to international markets. In countries such as India, local manufacturing rules, approved supplier lists, and import duties can significantly influence market access. Changes to these policies could either support or hurt First Solar’s ability to compete. For example, stricter local content requirements could benefit the company’s Indian manufacturing operations, while relaxed import rules could increase competition from lower-cost foreign producers. What makes this risk particularly important is that it is largely outside management’s control. First Solar can continue to innovate, improve efficiency, and expand capacity, but it cannot control political decisions or policy shifts. Changes in government priorities, political leadership, or budget pressures can all lead to changes in subsidies and incentives.

Macroeconomic factors is a risk for First Solar. One of the most important macroeconomic risks for the company is the level of interest rates, because the solar industry is highly capital intensive and most large projects require significant upfront financing. Unlike many businesses where revenue is generated quickly after an investment is made, utility scale solar projects typically involve large initial costs followed by cash flows that are generated gradually over 20 years or more. Because of this structure, project developers, utilities, and independent power producers often rely heavily on a combination of debt and equity financing to move projects forward. When interest rates rise, the cost of borrowing increases, which can make new solar projects less attractive from a financial perspective. Higher borrowing costs reduce the expected returns for developers and investors, which means some projects may no longer meet required return thresholds. In practical terms, this can lead to delays, downsized projects, or outright cancellations. For First Solar, this is important because its customers are the companies making those investment decisions. If they struggle to secure affordable financing, demand for the company’s solar modules can weaken. Another important aspect of this risk is that higher interest rates also make alternative investments more attractive. Investors comparing solar projects with other long term investments such as bonds, infrastructure, or other energy projects may decide to allocate capital elsewhere when interest rates are elevated. This can reduce the amount of capital flowing into new solar developments and therefore reduce the number of projects that move into construction. This risk is particularly relevant because First Solar primarily serves the utility scale market. These projects are often very large and require significant external financing. Even a relatively small increase in financing costs can have a meaningful impact on project economics. In 2024, this dynamic became visible when the company reported customer contract terminations and project delays, some of which were likely linked to financing challenges and weaker macroeconomic conditions. Macroeconomic weakness can also affect demand indirectly through broader economic uncertainty. If economic growth slows, electricity demand growth may moderate, corporate investment plans may be delayed, and utilities may become more cautious with large capital projects. This can reduce the pace of new solar installations, which directly impacts demand for First Solar’s modules.

Reasons to invest

Favorable long term trends is a reason to invest in First Solar. One of the strongest long term tailwinds for the company is the continued growth in global electricity demand and the broader shift toward electrification across the economy. More sectors are becoming increasingly dependent on electricity, and this trend is expected to continue for decades. From electric vehicles and industrial automation to data centers, cloud computing, and AI infrastructure, the world is moving toward a future that requires significantly more power generation capacity. This growing need for electricity creates a strong demand backdrop for new energy infrastructure, and solar is expected to be one of the most important parts of that mix. A key reason this trend is so favorable for First Solar is that solar energy is one of the fastest and most scalable ways to add new generation capacity. Compared with alternatives such as nuclear or natural gas plants, solar projects can typically be developed and brought online much faster. This is increasingly important at a time when access to power is becoming a bottleneck for industries such as hyperscale data centers and AI infrastructure. In other words, the speed at which solar can be deployed makes it a highly attractive solution for meeting urgent growth in electricity demand. Another important long term trend is decarbonization. Governments, utilities, and large corporations continue to focus on reducing carbon emissions and transitioning toward cleaner sources of energy. This creates a structural demand driver for renewable energy projects. Solar energy is already one of the lowest cost forms of new electricity generation in many markets, and continued improvements in efficiency and storage technology are making it even more competitive. As batteries and other storage solutions improve, solar becomes increasingly viable not only as a supplementary energy source but as a more central part of the electricity mix. The growth in electricity demand from data centers and AI is particularly important. These industries require massive and reliable amounts of power, and demand is expected to rise significantly over the coming decade. As AI workloads, cloud computing, and digital infrastructure continue to expand, utilities and project developers will need to add substantial new generation capacity. This creates a meaningful long term opportunity for companies like First Solar that are positioned to supply utility scale projects. Electrification of transport is another major tailwind. As electric vehicles continue to gain market share, overall electricity demand is expected to increase materially. This applies not only to passenger vehicles but also to commercial fleets, industrial transport, and charging infrastructure. The shift toward electric mobility therefore supports long term growth in renewable energy installations.

First Solar’s specialization in thin film solar technology is a reason to invest in First Solar. One of the company’s strongest investment cases is that it has built a unique and highly defensible position within the global solar industry through its focus on thin film photovoltaic technology. While most competitors rely on crystalline silicon modules, First Solar has spent nearly three decades developing and scaling its proprietary cadmium telluride platform. This differentiation gives the company a unique place in the market and reduces direct competition with the many silicon-based manufacturers that often compete primarily on price. A key advantage of this specialization is that thin film technology performs better in several real world operating conditions. First Solar’s modules tend to maintain performance better in high temperatures, humid environments, and under partial shading. These attributes are especially valuable in large utility scale projects located in hot and sunny regions, where energy yield over the life of the project matters more than simply the stated power output of the panel. In practical terms, this means customers may generate more electricity over time compared with traditional silicon modules, which improves project economics. Another important reason this specialization is attractive is the reduced reliance on polysilicon. Much of the global solar industry depends on polysilicon supply chains that are heavily concentrated in China and subject to price volatility, geopolitical risks, and trade policy uncertainty. First Solar largely avoids these issues because its thin film modules use a fundamentally different semiconductor material. This gives the company a more resilient supply chain and strengthens its competitive position, particularly in markets where domestic sourcing and supply chain transparency are increasingly important. The technology also provides sustainability advantages. First Solar’s thin film modules require significantly less semiconductor material than traditional silicon panels and have a lower carbon and water footprint. In a market where customers, regulators, and investors are placing increasing emphasis on environmental impact and lifecycle emissions, this can strengthen the company’s appeal and support long term demand. What makes this even more compelling from an investment perspective is that First Solar is not standing still. The company is continuing to improve its current cadmium telluride platform through efficiency enhancements and better energy yield. At the same time, it is investing heavily in next generation thin film technologies such as perovskites and tandem modules. These technologies have the potential to materially improve efficiency and reduce costs further over time. If successfully commercialized, they could represent the next major step forward in solar technology. This forward looking innovation strategy is particularly attractive because First Solar is uniquely positioned to bring these technologies to scale. Many companies may be able to develop promising technologies in a laboratory, but scaling them into high volume manufacturing is often the much harder challenge. As the world leader in thin film manufacturing at scale, First Solar has a significant advantage in moving new technologies from research into commercial production.

Expanding manufacturing capacity is a reason to invest in First Solar. One of the most compelling parts of the investment case is that the company is not only benefiting from strong long term demand trends but is actively scaling its manufacturing footprint to capture that growth. In an industry where many competitors face uncertainty around demand visibility and profitability, First Solar’s expansion strategy stands out because it is backed by an already substantial contracted backlog and a disciplined approach to capacity growth. A key reason this is attractive is that the company is expanding with demand already in hand. First Solar ended 2025 with a contracted backlog of 50.1 gigawatts valued at approximately $15 billion, following record module sales of 17,5 gigawatts and $5,2 billion in net sales. This provides strong visibility into future revenue and significantly reduces the risk that new factories are built without customers to absorb the output. In other words, the company is not expanding on hope alone. It is scaling production to meet demand that is already largely contracted. The expansion itself is meaningful. With the ramp up of its Louisiana facility and the planned South Carolina finishing facility, First Solar expects its total production capacity in the United States to increase significantly in the coming years. Its global production capacity is also expected to continue growing, which should support continued revenue growth as more modules can be delivered into an already strong pipeline of customer projects. Another important reason this is attractive from an investment perspective is the impact on efficiency and profitability. Manufacturing businesses often benefit from economies of scale, meaning that as production volumes increase, fixed costs can be spread across more units. This can improve margins and support stronger returns on capital. For First Solar, larger production volumes also support better utilization of its vertically integrated manufacturing process, which can further strengthen profitability. The U.S. expansion is particularly important because domestic manufacturing currently benefits from policy support and tax incentives. By increasing production capacity in the United States, First Solar strengthens its position in one of its most attractive markets. Domestic capacity also supports customer demand for locally produced modules and reduces reliance on international manufacturing for U.S. projects, which can be an important competitive advantage. Another positive aspect is that the expansion strategy is not limited to simply adding volume through new factories. Management has also highlighted that productivity improvements and better yields are expected to increase how much each factory can produce over time. This means that existing factories may be able to produce more modules as the company improves efficiency, increases the speed of production, and reduces the number of modules lost during manufacturing, even without building entirely new facilities. This supports additional growth and stronger profitability.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 14,21, which is from the year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 15% in the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on First Solar's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $426,30. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy First Solar at a price of $213,15 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.057, and capital expenditures were 870. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 609 in our calculations. The tax provision was 53. We have 107,3 outstanding shares. Hence, the calculation will be as follows: (2.057– 609 + 53) / 107,3 x 10 = $139,89 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With First Solar's Free Cash Flow Per Share at $11,06 and a growth rate of 5%, if you want to recoup your investment in 8 years, the Payback Time price is $174,69.

Conclusion

I believe First Solar is an interesting company with strong management. It has built its moat through its proprietary thin film technology, vertically integrated manufacturing, reduced reliance on Chinese supply chains, and strong relationships with utility scale solar developers. Historically, the company has generated a low ROIC, but this has improved significantly over the past three years. While part of the improvement has been driven by tax credits, ROIC is expected to remain higher going forward than it has been historically. Free cash flow has been negative in most years because First Solar has invested heavily in expanding its manufacturing capacity, but free cash flow turned positive in 2025 and, as the heavy investment phase is gradually coming to an end, free cash flow will hopefully continue to remain positive moving forward. Global oversupply is a risk for First Solar because solar manufacturing capacity, especially in China, has grown faster than demand, putting significant pressure on module prices and profit margins across the industry. Even though First Solar benefits from differentiated thin film technology and a strong position in the U.S., prolonged excess supply can make it harder to maintain pricing power, particularly in international markets where lower priced competitors are more prevalent. The modification, reduction, elimination, or expiration of government subsidies is also a risk because a meaningful part of the company’s recent growth and profitability has been supported by tax credits, incentives, and trade protections that encourage domestic solar manufacturing and project development. If these policies are reduced or removed, it could lower demand for new solar projects, weaken pricing power, and put pressure on earnings and margins. Macroeconomic factors are another risk because higher interest rates increase the cost of financing large utility scale solar projects, making some developments less attractive or even uneconomical for customers. This can lead to project delays, cancellations, and weaker demand for First Solar’s modules, while broader economic uncertainty may further slow new solar installations. On the other hand, favorable long term trends are a reason to invest in First Solar because global electricity demand is expected to rise for decades, driven by electrification, AI infrastructure, data centers, and electric vehicles. As one of the fastest and most scalable ways to add new power generation capacity, solar is well positioned to benefit from these structural growth trends, creating a strong long term demand backdrop for First Solar’s modules. First Solar’s specialization in thin film solar technology is another reason to invest because it gives the company a differentiated and defensible position in an industry otherwise dominated by silicon based competitors. Its proprietary cadmium telluride technology offers better performance in hot and humid conditions, reduced reliance on Chinese polysilicon supply chains, and a clear path for future innovation through next generation technologies such as perovskites and tandem modules. Expanding manufacturing capacity is also a reason to invest because the company is scaling production to meet demand that is already largely secured through its substantial contracted backlog, which provides strong visibility into future revenue. At the same time, higher production volumes and improving factory efficiency should support stronger margins, better returns on capital, and an even stronger position in the attractive U.S. market. While there are many things to like about First Solar, I personally believe that the industry is too volatile and I do not want exposure to the sector. Hence, I will not be investing in First Solar at this time.

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