Enphase Energy Q3 2026: Core Business Shrinks as Data Center Bet Looms
As seen on the 24/7 Wall St. homepage on October 27, 2026.
Investors are being asked to buy the AI data center transformer business as the 2027 story, because the core business is shrinking now: U.S. volumes are down 35% year over year as the Section 25D credit expires.
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Enphase Energy's Q3 2026 revenue of $293.3 million came in short of consensus, with adjusted non-GAAP EPS missing expectations as investment impairments reduced both GAAP and non-GAAP figures.
Sell-through, the actual demand flowing through installers to homeowners, grew just 1% sequentially in Q3, well below management's own target. U.S. volumes fell as higher interest rates and the expiration of the Section 25D federal tax credit weigh on residential solar demand, while European sell-through retreated on summer seasonality and softness in France.
Margins are compressing alongside the revenue slide, with non-GAAP gross margin narrowing to 45.0% from the prior quarter as reciprocal tariffs dragged on the figure. Operating cash flow effectively evaporated and free cash flow turned negative for the quarter.
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Q4 2026 revenue is projected at $225.0 million to $255.0 million, and management expects sell-through to decline a further 10% sequentially. Non-GAAP gross margin is guided lower, including tariff impact, meaning margins compress further before they recover.
Management is pointing investors past the near-term deterioration toward 2027 growth drivers, led by IQ Solid-State Transformer technology aimed at AI data centers. CEO Badri Kothandaraman noted the company more than doubled its IQ SST customer and partner pipeline to over 50 in Q3 and is actively engaged with a leading hyperscaler and a global AI computing leader. Commercial shipments are not expected until 2028.
Enphase has now reported $0.41 in the latest quarter, down from the $0.90 posted in Q3 2025, with recent quarters landing at or below consensus. Whether the IQ SST opportunity is large enough and near enough to offset a core business contracting at this pace is the central question investors now have to weigh.
Mentioned: ENPH