SolarEdge Technologies (SEDG) – A “picks and shovels” investment in Renewable Energy

Company:                                             SolarEdge Technologies Inc

Sector:                                                 Technology – Solar/Alternative Energy

Price/Market Cap:                                 $245/$13.1B

I first encountered SolarEdge in mid-2019 while reviewing a non-Wall Street report on the solar industry ecosystem.  I was reading the report purely out of curiosity. It was only after digging in that I realized there might be some decent investment ideas within the sector. I was not interested in solar panel manufacturers that would be heavily reliant on imported raw materials and subject to fluctuating commodity prices. The installers are services businesses, characterized as cyclicals with high operating costs and scalability headwinds. Cabling is commoditized. But when I read the section about power optimizers and inverters, I had an “Aha!” moment –These are the proverbial “picks and shovels” within the renewable industry. These devices are built using semiconductor technology that I am highly familiar with, and these systems are essentially the “brains” of the solar panels built with technology that can likely be applied to numerous other form factors in and out of the sector. Opportunity. 

Stepping Back from the Noise

“And so I moved that very day into the heart of a quince, where the seeds are few and almost silent.” – Khalil Gibran, from the poem “The Pomegranate”

I was always taught that evolution is a slow process that occurs over generations.  The reality is that evolution can occur quickly.  A meteorite slams into the earth, smoke and debris deny plants of sunlight, and the dinosaurs begin to die as their food sources whither. Mammals emerge from their tunnels and thrive as they realize their former predators are quickly dying away. Any change in our external environment can lead to faster evolution as species do what it takes to survive.  Scientists have even shown[1] that a species can evolve in real time.