The promise of the Internet has finally panned out, but far after the initial investor euphoria of the late 1990s. The Internet was
the future back then -- but this future did not come as soon as the dot-com investor base had hoped. Today, purely Internet based enterprises like Google
(NASDAQ:AMZN), and eBay
(NASDAQ:EBAY) are among the largest companies in the world, and the Web-based economy continues to grow rapidly.
There are some interesting parallels between the Internet in 1999 and solar power in 2007. Both sectors saw massive investor interest based on disruptive technology that would change the existing business order. Both sectors also saw a spectacular fall from grace when the broader market hit a bear market, and both sectors remained in the doldrums for years after that fall.
A quick visual illustration of that psychological similarity can be seen in a comparison of Priceline
(NASDAQ:PCLN) from 1999 to 2005 and SunPower
(NASDAQ:SPWR) from 2006 to 2013.
Click to enlarge
Fast forward to today, though, and the future of the solar industry looks much brighter. Solar power is quickly matching the costs of traditional fossil fuels. I read a good article this morning by Michael Sankowski at the Monetary Realism blog
, which I found through Barry Ritholtz’s weekend reading list
. Here’s the meat:
I did a quick chart in R to figure out how quickly solar will be cheaper than even pretty cheap coal electricity, with a variety of cost per year reductions. It turns out solar will be cheaper than even cheap coal in 20 years as long as the price reductions are greater than 4% per year. Solar will be cheaper than cheap coal in 10 years as long as price falls at more than 15% per year.
Remember, we’ve seen price reductions of more than 22% per year for the last five years. Solar will be cheaper than cheap coal if this keeps up for another five years. These price reductions add up very quickly.
Sounds to me like another “hot” industry where investors were just too early, but the long-term story is as attractive as ever. This theme, of course, hit my radar because of the recent excitement in the solar space, most notably in First Solar
(NASDAQ:FSLR). But in the long run, the real key will be picking the winners from the solar industry’s rubble. Previous fallen angels of the Internet like JDS Uniphase
(NASDAQ:JDSU) and Juniper Networks
(NYSE:JNPR) never made much of a move, while AMZN and PCLN now trade at multiples of where they traded in 2004 or 2005.
This item by Enis Taner was originally published on RiskReversal.com
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