Demand for artificial intelligence engines has sent shares of Vistra Corp., one of the largest U.S. power producers, soaring even higher than those of Wall Street darling Nvidia Corp.
Investors including Daniel Loeb, the billionaire founder of Third Point LLC, have been snapping up Vistra shares, betting that huge growth in demand, driven in part by power-hungry artificial intelligence data centers, will only grow. That’s driven shares of the company up more than 300% in the past 12 months, making the Texas-based company a top performer in the S&P 500, a benchmark it joined less than a month ago. Best company. Peers have lagged behind, with utility stocks in the index returning about 10% over the same period.
“Power demand is extremely strong and driven by the data center trade,” but Vistra’s combination of gas and nuclear plants makes it a “unicorn,” Guggenheim’s Shahriar Pourreza said The stock has Wall Street’s highest price target of $133.
After hitting a record high earlier in the week, shares sold off on Friday as Vistra detailed plans to add natural gas capacity in Texas. Preza wrote in a note to clients that investors were worried this could be “the tip of the oversupply iceberg,” but he viewed the changes as “somewhat mild.”
Data center power demand will more than double by 2030, according to Goldman Sachs estimates, and a range of utilities are expected to benefit from the artificial intelligence boom. But Vistra’s status as one of the few public independent power producers – a status that means it sells power at market prices, unlike regulated utilities – makes it an independent union and boosted stock prices.
Janney Montgomery Scott analyst Thomas Meric said in an interview that because Vistra is a direct participant in the market, “the clearest investment thesis is that wholesale electricity prices will increase.”
Vistra is helping attract investors as a major player in the booming Texas power market and as a major owner of nuclear generation capacity after spending more than $6 billion to acquire Energy Harbor Corp. Since the company’s nuclear fleet is eligible for generation tax credits under the Inflation Reduction Act, it could also attract deals from major AI players.
Data centers are looking for around-the-clock clean energy, and “nuclear power plants are a very powerful way to achieve that,” Guggenheim’s Pulreza said. He added that investors expect the company will be able to contract its factories directly with data centers, similar to the energy-matching agreement between Constellation Energy and Microsoft Corp.
Preza said other key catalysts going forward will be the company’s first earnings-per-share guidance and the company’s long-term outlook.
Janney’s Meric said that even after this rally, Vistra stock is relatively cheap compared with other ways to capitalize on the artificial intelligence and data center boom. The company’s price-to-earnings ratio is about 17 times next year’s earnings, while Nvidia’s price-to-earnings ratio is 37 times. Wall Street analysts are overwhelmingly positive, with 10 of 11 analysts surveyed by Bloomberg giving the stock an equal buy rating.
Morningstar analyst Travis Miller, who has the lone sell recommendation on the stock, said the trend driving the rally could falter. On the one hand, growing renewable energy generation could squeeze Texas’ traditional power producers.
“The market got a little too excited,” Miller said. Current analyst price targets suggest prices are likely to cool off, with the average price of $108 implying a 12% rise over the next 12 months, and even Pourreza’s $133 street price high suggests a slower pace of gains.
But for followers, including activist investor Loeb, the expansion of renewable energy is another reason to buy. plants, which are available in a pinch, he said. In a letter in April.
Vistra was one of his hedge fund’s top five winners in the first quarter, and Loeb cited power demand for data centers and electric vehicles as another reason for long-term confidence.
“Vistra is leading the way in capitalizing on these trends,” he wrote. “We expect their asset discounts to continue to narrow as their operations become increasingly important to meeting domestic power demand.”
