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Next week, the FOMC's interest rate decision for September, Wall Street will be closely watching to see if the Fed does go by, cut by 25 or maybe 50. But how will that affect a rate sensitive industry like solar? For more and how investors should be looking at the space, we're bringing in Mahip Mandloi, Mizuho America's director of clean energy equity research. Mahip, good to see you. So, let's start right there. Obviously, all attention is on the Fed next week, Mahip, and there's debate we've had on this show between very smart people, whether it's going to be 25 or supersized 50. How does that event, how does that impact your coverage universe?

Uh hi Josh, hi Julie and definitely there's a nice transition from interest rates to solar, right? Uh it is this industry is very levered. We've seen this industry react to any positive news on interest rates the last year and we'll continue to see that going forward. Most of these companies do have almost 70, 60, 70% leverage or debt to capital ratio. There's definitely a lot of upside there. And there are two things to think about it. One is obviously on the fundamentals that, you know, helps reduce the interest expense going forward. But also in valuation, you know, these industries generally get the growth multiples, which generally tend to do better in lower interest rate environments.

And the stocks being, valuations of stocks, at least as a group, have really come down quite a bit. Something else that is an upcoming potential catalyst is the US presidential election, at least it's perceived as such. We saw these stocks rally following the presidential debate, and again this perception that if Kamala Harris' chances to become president are higher, she could potentially be more friendly to the industry. Do you think that that view is the correct one?

No, absolutely. And not just friendly, it's keep the status quo of the inflation reduction acts, right? And funny enough, it was at a solar trade show earlier this week on Tuesday evening after, you know, doing a meeting. Everyone was glued on their TVs, just looking at the debate. And I think after the, you know, later in the evening and the drinks and everyone kind of sighed and said, okay, yeah, sure looks like Kamala did slightly better, so that bodes well for all the renewable policies. But also Trump talks about President Trump talks about, he said, he likes utility solar. He had caveats after that, nonetheless, but still, he said that. And he did say he wants jobs over here, which also bodes well for most of our companies over here. So I don't think it'll be like a very bad news if Republican or Trump come on in. I think we've said in our notes, it's maybe at worst down 20, 25% impact to our stocks. But definitely the business case or the status quo will be maintained in the Kamala Harris.

Mahip, let's get to some picks through, you know, I look at your coverage universe, a few different upper forms, Enphase, Sunrun, SolarEdge, Sunnova. What about First Solar though? You're on the sidelines on that name, how come? And what do you need to see before getting more bullish?

Yeah, they are the biggest beneficiary of the inflation reduction Act. They do get a lot of their earnings from these incentives. More than 60% of their EPS in our estimates for 2025 would come from these incentives from the inflation reduction Act. So there's a risk to those incentives. It's a non-zero risk, so we need to take that into account. And on top of that, we could see potential competition in the US later this year because of near-shoring, which will take two years to materialize. It takes at least two years to set up solar factories in the US. So I think that's the bigger question for investors. I think the near term or the next two, three years is already priced in. The question is, if competition comes up in the US with new US factories, what does that do to First Solar? And so we're on the sidelines on that, and we'll see what changes after the elections or potentially any new tariffs which US imports against other countries.

Mahip, I'm also curious about US penetration and adoption. You know, we talk a lot on this show about the waning demand for electric vehicles. It feels like solar is sort of in a similar vein, but what, what have those adoption trends looked like? Is it still, and is it still as popular, I guess, with US consumers?

It is. As in if you look at the penetration rates for residential solar, we're somewhere around 5% of rooftops of eligible rooftops are penetrated with solar. How fast this number grows, it depends on interest rates, because most of the solar is bought on financing. But we think we can easily get to 10 to 12% later this decade. The challenges become in some states when it grows more than 25, 30%, when issues on, which came up in California recently on, you know, the non-solar customer subsidy and the solar customer comes up. But I think that that's somewhat of an issue later this decade or next decade.