Solar power systems company SolarEdge $(SEDG)$ reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 9.1% year on year to $289.4 million. On top of that, next quarter’s revenue guidance ($335 million at the midpoint) was surprisingly good and 10.2% above what analysts were expecting. Its non-GAAP loss of $0.81 per share was 3.5% above analysts’ consensus estimates.

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StockStory’s Take

SolarEdge’s second quarter results were met with a significant negative market reaction, as investors remained cautious despite revenue surpassing Wall Street expectations. Management attributed the quarter’s performance to increased U.S. production, strong growth in commercial and industrial (C&I) markets, and early signs of European market share recovery. CEO Shuki Nir acknowledged ongoing operational challenges but emphasized progress on “all four pillars of our turnaround journey,” including tighter expense management and normalization of channel inventories. Management also noted that tariff-related pressures, while still a headwind, had a smaller impact on gross margins than originally forecast.

Looking forward, SolarEdge’s guidance is shaped by several factors: the onshoring of U.S. manufacturing, introduction of the Nexis platform, and evolving regulatory incentives. Management believes the recently enacted One Big Beautiful Bill Act will help sustain domestic production and drive adoption among U.S. customers, while new software and storage offerings are expected to support growth in both residential and C&I markets. CFO Asaf Alperovitz stated that, "the ramping up of our U.S. production is very important to us...as we start selling U.S.-made products globally," suggesting further operating leverage and improved margins could materialize as volumes scale.

Key Insights from Management’s Remarks

Management highlighted the impact of evolving regulatory incentives, operational streamlining, and new product introductions as major drivers of the quarter’s performance and future outlook.

• Regulatory clarity supports U.S. strategy: Management credited the One Big Beautiful Bill Act for removing uncertainty in solar and storage markets, enabling SolarEdge to commit to U.S.-based manufacturing and benefit from the 45X advanced manufacturing credit for the next seven years. This move is expected to strengthen domestic market positioning and support global exports of U.S.-made products.
• Market share recovery in Europe and U.S.: CEO Nir pointed to initial market share gains in Europe following improved go-to-market strategies and normalized distributor inventories, while in the U.S., a shift toward third-party ownership $(TPO.AU)$ models is expected to favor SolarEdge, given its infrastructure and product fit for TPO customers.
• Commercial storage and software traction: The company saw record sales in commercial storage and increasing adoption of its Wevo EV charging software, with new partnerships established, including a major agreement with Schaeffler Group to deploy charging solutions globally. These developments reflect a broader push into integrated energy management and software-driven services.
• Operational streamlining and expense control: SolarEdge continued to reduce non-core activities, highlighted by the disposition of its tracker business and the write-down of the Sella 2 facility, while achieving a fifth consecutive quarter of inventory reduction. Management emphasized ongoing efforts to right-size the business and focus on core competencies.
• Gross margin improvement from product mix and cost controls: The quarter saw higher gross margins, supported by increased U.S. production, a favorable regional sales mix, and lower-than-expected tariff impact. Management expects further improvements as new products with better cost structures launch and scale, and as manufacturing utilization increases.

Drivers of Future Performance

SolarEdge’s outlook centers on expanded U.S. manufacturing, new platform launches, and evolving credit incentives, while cost discipline and product mix remain key margin levers.

• U.S. manufacturing ramp and regulatory incentives: Management expects the extension of the 45X credit to drive continued investment in domestic production facilities, which should improve fixed cost absorption and enable global exports. This shift is also intended to help offset tariff headwinds, which are anticipated to be neutralized next year through supply chain optimization and potential price adjustments.
• New product introductions and energy management: The Nexis platform, set for release later in the year, is expected to address unmet needs in key markets such as Germany and enable new revenue streams through stackable batteries and improved integration with storage. Combined with growth in commercial storage and EV charging software, these offerings are designed to expand SolarEdge’s addressable market and support higher gross margins.
• Risks from shifting demand and policy changes: Management warned of potential declines in U.S. residential demand in 2026 due to the expiration of the 25D credit, though this may be partially offset by increased TPO adoption. European market recovery is ongoing but remains below historical share, and revenue mix shifts could introduce currency and pricing volatility.

Catalysts in Upcoming Quarters

In upcoming quarters, our analysts will focus on (1) SolarEdge’s ability to ramp U.S. manufacturing and export U.S.-made products globally, (2) the commercial launch and market adoption of the Nexis platform, and (3) continued progress in recovering European market share following distributor inventory normalization. The impact of shifting U.S. incentive policies and the pace of adoption for new energy management software will also be critical signposts.

SolarEdge currently trades at $24.94, down from $25.82 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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