Goldman Sachs' latest report highlights a structural investment opportunity in the solar sector. Despite early 2025 policy-related volatility, surging power demand from data centers is fundamentally altering the growth trajectory of the US power grid.
According to the report, solar has become the cornerstone of America's energy transition, projected to account for 54% of new power generation capacity additions in 2025. With data center electricity consumption consistently exceeding expectations, solar's dual advantages in cost competitiveness and rapid deployment position it as a primary beneficiary of this long-term demand driver.
Valuation metrics reveal US solar stocks remain significantly below historical peaks, trading at notable discounts compared to other power sector themes. Utility-scale solar operators particularly stand out as attractive investment vehicles for participating in the energy transition at relatively low entry costs.
Data Center Revolution: A New Demand Catalyst for Solar Goldman's utilities team recently raised US electricity demand growth forecasts, increasing the annual compound growth rate projection from 2.5% to 2.6%. This revision primarily reflects robust data center demand, expected to contribute approximately 120 basis points of growth by 2030, with AI data centers alone accounting for 70 basis points.
The report estimates the US will require about 82GW of new generation capacity by 2030 to meet data center needs. This projection assumes 60% of data centers will require new power infrastructure, with the capacity mix expected to be 60% natural gas and 40% renewables. Under this framework, solar is projected to deliver roughly 21GW of new installations.
Utility-Scale Solar Shows Steady Growth While Residential Market Faces Short-Term Headwinds Goldman forecasts US utility-scale solar installations will grow approximately 3% year-over-year in 2026, reaching about 40GW.
However, the residential solar market is expected to contract in 2026 as the Section 25D tax credit for cash and loan sales expires at the end of 2025. The firm projects residential solar installations could decline around 20% year-over-year.
Industry executives note the most pronounced quarterly declines will likely occur between Q4 2025 and Q1 2026. Goldman analysts believe Q1 2026 will mark the cyclical trough before installation activity gradually recovers.
Valuation Gap: Utility-Scale Solar Stocks Remain Historically Undervalued Although US solar stocks have rebounded from early 2025 lows, valuation multiples remain compelling.
Utility-scale solar companies currently trade at significant discounts to both the broader power sector and market averages based on 2026 earnings estimates. This valuation gap offers investors relatively low-cost exposure to America's energy transition. Given solar's cost and deployment advantages over new-build natural gas and nuclear projects, current valuations may already factor in substantial growth potential.
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