Is a Dotcom-Style Clean Energy Crash Around the Corner? Almost Half of Investors Say Yes

President Joe Biden’s ambitious climate plan, including more than $2 billion in proposed spending on clean energy projects for Fiscal Year 2022, was widely projected to spur a boom in clean energy investments and the overall performance of that sector.

Yet today, amid the sector’s relative underperformance compared to the lofty expectations which were set at the onset of the Biden presidency, some media commentators are going as far as likening clean energy stocks to the tech stocks of the 2000 dotcom crash — including in regard to the crowded nature of this space.

Are such prognostications of a clean energy crash hyperbolic, or do they reflect a real concern among investors? In a new survey of more than 1,200 respondents in the U.S., Investing.com took investors’ pulse on the issue of clean energy. And indeed, almost half (46 percent) of U.S. investors said they see similarities between today’s clean energy sector and the dotcom crash.

Over 70 percent of investors in clean energy are disappointed with the sector’s performance under Biden — including 41 percent who said clean energy investments have “fallen significantly short” of their expectations. In fact, 13 percent confirmed that they will sell their clean energy investments now, less than a year into Biden’s presidency.

“The underperformance of many clean energy stocks this year comes as investors book some profits, following the sector’s significant gains throughout 2020,” said Jesse Cohen, senior analyst at Investing.com. “As the trade became progressively more crowded in Q1 of this year, the smart money - which poured into the sector even before Biden was elected - headed for the exits.”

A notable proportion of respondents — 1 in 5 — began investing in clean energy after Biden was elected president, while about 1 in 4 specifically made these investments due to their perceptions surrounding the sector’s growth potential under Biden. As it turns out, Biden was not the only public figure driving the investments, with 28 percent of respondents saying Tesla (NASDAQ:TSLA) chief Elon Musk played a role in their decisions at least to some extent. Not surprisingly, then, Tesla stock was part of the portfolios for nearly 40 percent of clean energy investors in the survey, with nearly 35 percent investing in Pacific Ethanol (NASDAQ:ALTO) as well as roughly 30 percent in Plug Power (NASDAQ:PLUG) and Nio (NYSE:NIO). The most popular ETFs for clean energy investors, meanwhile, were iShares Global Clean Energy (34 percent), Invesco Solar (23 percent), and First Trust Nasdaq Clean Edge Green Energy Index Fund (20 percent).

“Companies involved in the low-carbon energy industry, such as solar panel manufacturers and wind-turbine makers, as well as firms working throughout the EV supply chain, stand to benefit the most from the ongoing shift to alternative energy,” Cohen added. “Some of the names which are likely to outperform in the months ahead include NextEra Energy (NYSE:NEE), which is the largest electric utility in the U.S., in addition to companies such as First Solar (NASDAQ:FSLR), SolarEdge Technologies (NASDAQ:SEDG), Plug Power (NASDAQ:PLUG), and Sunrun (NASDAQ:RUN). Looking elsewhere, in Europe, Denmark’s Vestas Wind Systems, the world’s largest wind-turbine manufacturer, and Italian utility Enel (MI:ENEI) should also do well.”

At the same time, these investors are not throwing all their eggs in one basket. Only 1 percent said their entire portfolio is devoted to clean energy and just 5 percent dedicate over three-quarters of their investments to this space, with 43 percent responding that clean energy comprises less than 10 percent of their portfolio.

Among those who have avoided clean energy investments, almost 30 percent did so due to skepticism over the sector’s potential in the market regardless of who is serving as U.S. president, while 22 percent were driven away from the investments specifically because they believe Biden’s policies will not have a positive impact on the sector. These sentiments affirm the commentary of some analysts who expressed skepticism when Biden took office, warning that investors were betting big on clean energy too early. More than 40 percent of respondents agreed that investors are jumping on the clean energy bandwagon too soon. Thirty one percent attributed the sector’s underperformance to Biden’s failure to live up to his campaign promises, and 29 percent cited supply chain issues associated with the reopening of the economy following the COVID-19 lockdown. More than 90 percent expressed that clean energy stocks’ performance are connected to government policy, including 46 percent who described that connection as “strong.”

Twenty eight percent of respondents said the performance of clean energy stocks in 2021 has reinforced their stance against these investments — although nearly half (47 percent) said this year’s events have made no impact on their outlook.

Moving forward, however, there is at least some optimism regarding clean energy investments. Nearly 70 percent of investors anticipated some degree of growth in the sector’s value in the coming year, although 29 percent predicted that value would increase by less than 10 percent. About 14 percent expect a stagnant year in which the sector will remain at its current value.

“Despite near-term headwinds, we recommend purchasing a basket of clean-energy stocks, such as the iShares Global Clean Energy ETF (NYSE:XLE), in anticipation of a future boom in the sector as the world shifts away from fossil fuels to alternative energy,” said Cohen.

That said, the aforementioned 46 percent of surveyed investors who see similarities between the clean energy and dotcom landscapes are sending an unmistakable message: Clean energy is the next crash waiting to happen.