Enphase Energy Inc. (ENPH), a major American solar equipment company, anticipates that the U.S. residential solar market will contract by 20% next year, following the expiration of homeowner tax credits as part of President Donald Trump’s sweeping economic legislation. Despite this pessimistic forecast, Enphase Energy reported strong results for the second quarter of 2025, surpassing both earnings and revenue expectations. The company posted quarterly earnings of $0.69 per share, higher than Zacks’ consensus estimate of $0.62 per share, and a significant increase compared to earnings of $0.43 per share last year. These figures are adjusted for one-time items and represent an 11.29% earnings surprise. The company’s revenues amounted to $363.15 million in the quarter ended June 2025, exceeding the consensus forecast by 1.92%.

While some analysts had predicted even steeper declines in the residential solar market, Enphase’s assessment marks one of the first major forecasts from an industry player since the approval of Trump’s bill. The company is among the first U.S. solar energy companies to report earnings this quarter, indicating its relative resilience in a challenging environment. Enphase CEO, Badri Kothandaraman, warned on Tuesday that residents interested in installing solar energy and home batteries will need to shift to financing systems through third-party leasing contracts, which will still qualify for tax incentives next year. “I expect the leasing market to go up slightly and the cash and loan market to significantly shrink” next year, he said during the company’s second-quarter earnings call.

The Battle for Incentives: Market Impact and Business Model Shifts

The reduction in federal government support is hurting the residential solar industry after home solar installers had already faced significant difficulties. These challenges included persistently high interest rates, which made purchasing solar panels more expensive for residents. Two key investors in residential solar financing have already filed for bankruptcy this year, highlighting the severe financial pressure in the industry. Trump’s new tax and spending bill, approved earlier this month, will eliminate tax incentives for residential solar purchases by the end of the year. However, companies that lease panels (the leasing model) can still claim the incentive until 2027, creating a clear incentive to shift to this business model.

Analysts at BloombergNEF anticipate an approximately 13% increase in residential solar installations this year compared to last year, as homeowners rush to take advantage of the expiring tax benefits. However, the forecast for 2026 is much more pessimistic: BNEF projects a 35% decline in the market that year, indicating a dramatic reversal of the trend. To adapt to the new reality, Enphase will focus on working with more leasing companies and reducing customer acquisition and installation costs. This move is essential for the company to maintain its profitability and market share in a changing regulatory and economic environment. Enphase’s stock fell by approximately 7% in after-hours trading after the company issued a third-quarter revenue forecast that missed analysts’ estimates, suggesting that the market is digesting the implications of these policy changes.

Stock Performance, Analyst Ratings, and Future Risks

Enphase Energy’s stock has lost about 42.3% of its value year-to-date, compared to a 7.2% increase in the S&P 500 index, highlighting its significant underperformance. Nevertheless, the company has surpassed consensus EPS forecasts twice in the last four quarters and exceeded revenue forecasts twice in the last four quarters. Empirical studies show a strong correlation between near-term stock movements and trends in earnings estimate revisions. Leading up to this earnings report, the trend of estimate revisions for Enphase Energy was mixed, with its current status translating to a Zacks Rank #3 (Hold) rating for the stock, suggesting it is expected to perform in line with the market in the near future.

The current EPS estimate is $0.58 on revenues of $366.24 million for the upcoming quarter and $2.46 on revenues of $1.45 billion for the current fiscal year. Investors should be aware that the industry outlook can also have a material impact on stock performance. In terms of Zacks Industry Rank, Solar Energy is currently among the top 33% of over 250 Zacks industries. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a ratio of more than 2 to 1. Another stock in the same sector, Array Technologies, Inc., is expected to report quarterly earnings of $0.21 per share in its upcoming report, representing a 5% change from the prior-year period, and revenues of $290.31 million, a 13.5% increase.

Looking Ahead: Regulatory Adaptation and Navigating a Competitive Landscape

The anticipated decline in the U.S. residential solar market, as a result of the elimination of direct tax credits, poses a significant challenge for Enphase Energy and the entire industry. The shift to a leasing model, alongside reducing customer acquisition and installation costs, will be critical for companies like Enphase to maintain stability and profitability. Their success depends on their ability to quickly adapt their business models to the changing regulatory environment and remain attractive to consumers despite reduced incentives.

Concerns about high interest rates and bankruptcies among financing companies in the sector underscore the risks involved. However, the inherent potential in the solar energy sector, particularly in the context of a global transition to green energy, remains substantial. Enphase, as a leading player with proven technological capabilities, is well-positioned to capitalize on these opportunities, provided it successfully navigates the regulatory and financial challenges it faces.