SolarEdge Technologies (SEDG) beat Q4 expectations and guided to in-line Q1 demand, signaling ongoing recovery in its core markets and long-term growth potential from its Nexis platform and Solid State Transformer for 800V DC data centers, Morgan Stanley said in a Thursday note.

The brokerage said Q1 guidance was largely in line with expectations and consistent with normal seasonality. It expects continued recovery in core markets and forecasts adjusted gross margin to rebound to about 30% by 2027, driven by higher US manufacturing output and growing battery attach rates.

Despite an expected decline of about 25% in the broader residential solar market this year, Morgan Stanley said it sees the company gaining share due to its exposure to the third-party ownership market. Meanwhile, Europe remains soft but is projected to contribute higher revenue next year.

The firm maintained its equal weight rating on the stock and raised its price target to $40 from $33.

Shares were down more than 2% in recent trading.

Price: 34.23, Change: -0.87, Percent Change: -2.48