Clean Tech Sector 2024: Morgan Stanley Optimistic On 5 Key Players, Skeptical On 4 Market Contenders

Morgan Stanley analysts have issued their outlook on the clean tech sector, offering an overview of 2023 and projecting trends into 2024.

4 Themes Affecting Clean Energy Valuations In 2024

Analysts Andrew S Percoco and David Arcaro outlined four key themes that they believe will affect clean energy valuations into 2024. After the substantial sell-off in clean tech stocks in 2023, here’s what Percoco and Arcaro believe will dominate the clean tech sector in 2024.

1. Interest Rates and Clean Energy Valuations:
   • If interest rates decrease, there is a possibility of significant enhancement in the valuations of clean energy.
2. Deflation Impact on Clean Energy Technologies:
   • The deflation of core clean energy technologies may help counterbalance the impact of high interest rates, although the mitigation might be less substantial than initially expected.
3. Election Cycle Effects on Clean Energy:
   • While the repeal of the Investment Tax Credit (IRA) doesn’t seem probable, the presence of anti-IRA rhetoric could create a lingering concern for the clean energy sector.
4. Profitable and Low-Risk Growth in Clean Energy:
   • Companies that demonstrate both profitability and low-risk growth, coupled with clear demand visibility, are expected to outperform their counterparts until there is a decrease in interest rates and macroeconomic uncertainties subside.

For the clean tech sector as a whole, the analysts maintain their ‘Attractive’ industry view of Clean Tech. . They predict more than 10 years of vigorous growth in renewables, supported by IRA legislation and favorable renewable energy economics.

Read: Clean Energy Battle: Plug Power’s Hydrogen Economics Against Bloom Energy’s Strong Underlying Demand

Sub-Sector Considerations

Within the clean tech space, analysts looked at the various sub-sectors and shared their view for 2024.

• Residential solar may experience a pull forward in rates, potentially increasing the value of long-duration portfolios.
• Large-scale solar may face challenges in supply chain, permitting, and financing.
• Battery storage growth may be solidified by improved economics from commodity deflation and global oversupply.
• Onshore wind reinvestment continues, but growth is expected to slow until 2025.
• Offshore wind development pipeline issues may persist into 2024.

Stock Considerations

Given the optimism they hold for the sector, Morgan Stanley upgraded First Solar Inc FSLR to Overweight. The price target for FSLR stock was increased from $214 to $237 per share, offering a 64% upside.

Other high-conviction Overweight-rated stocks in the U.S. Clean Energy space highlighted by Morgan Stanley were NextEra Energy Inc NEE and The AES Corp AES, Bloom Energy Corp BE and Altus Power Inc AMPS.

Underweight-rated picks from the space included Plug Power Inc PLUG, SunPower Corp SPWR.

Clean tech companies with the most downside per Morgan Stanley’s assessment included Shoals Technologies Group Inc SHLS and Array Technologies Inc ARRY.

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