Do you know the fastest-growing energy technology in history?
It’s not oil, natural gas, coal, or even nuclear. It’s…
Sun power, aka solar.
Solar now supplies about 10% of global electricity:
Source: Nat Bullard
For years, solar was dismissed as marginal. Too expensive. Too unreliable. Dependent on subsidies. Fine for rooftops in sunny places, but useless at scale.
That picture is badly outdated.
It’ll never meet 100% of our energy needs. And I’m more pro-nuclear than ever. But as solar continues to get cheaper and better, its growth will only accelerate.
Over the past 50 years, the price of solar modules has collapsed 99.6%. They’ve also gotten a lot more efficient. Compared to 20 years ago, you now need 87% fewer solar panels to produce the same amount of energy.
This is why solar power is no longer some hippie dream. In many regions, it’s now cost-competitive with fossil fuels. The exact economics vary by location, but the direction is unmistakable.
Exponential growth industries like solar often trip up investors. They systematically underestimate it. Folks made the same mistake with smartphones, the internet, and electric vehicles.
Early on, adoption looks slow. Then it takes off like a rocket.
Solar is on that trajectory.
Here’s one of my favorite charts. The black and grey lines are forecasts from the International Energy Agency about how much solar will be deployed in the next year.
The red line is what actually happened:
Source: Carbon Brief
Why does this keep surprising “the experts”? Because solar is on a manufacturing learning curve. As we build more, it gets cheaper.
Solar is easily the most underrated disruption in the world.
Year after year, the experts predicted solar growth would flatten out… and year after year, reality blew past them.
That’s the hallmark of a true megatrend: It keeps surprising even the people paid to study it.
And yet, you could have easily lost money investing in solar.
Even inside a booming megatrend, picking the wrong stock can destroy your returns.
But that doesn’t make every solar stock a winner.
Solar stocks aren’t a monolith. They operate in different parts of the ecosystem… sell to different customers… and face very different economics. That’s why, inside the same booming industry, one company can struggle while another flourishes.
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Case in point: Enphase Energy (ENPH), one of the three largest solar stocks, got cut in half this year.
Meanwhile, our Disruption Investor pick Nextpower (NXT) more than doubled:
Same megatrend. Radically different results.
How?
Enphase sells microinverters to homeowners—people putting solar panels on their rooftops. Demand can slow quickly when interest rates rise or consumer confidence fades, as it did this year.
Nextpower sells solar-tracking systems to utility-scale solar farms. These are massive commercial installations built for utilities, governments, and data-center operators, often under long-term contracts.
It all boils down to a simple tool you learned in school: the Venn diagram.
As the chart below shows, the first circle in the diagram represents great businesses: companies that consistently grow their revenues and make boatloads of cash.
The second circle symbolizes disruptive megatrends: fast-growing, world-changing forces like solar.
Where these two circles overlap is the “sweet spot:” great businesses profiting from megatrends.
Only stocks that hit the sweet spot in the middle can make it into the Disruption Investor portfolio.
Over three decades of collective investing experience has taught my partner Chris Wood and me the same lesson:
If you pick great businesses riding powerful megatrends, the rest takes care of itself.
Nextpower is a textbook example.
Stephen McBride
Chief Analyst, RiskHedge