Demand to power artificial intelligence engines has sent shares of Vistra Inc., one of the largest U.S. power producers, soaring faster than shares of Wall Street darling Nvidia Inc.
Dear Investors, include Daniel Loeb, the billionaire founder of Third Point LLC, has been buying Vistra shares, betting that a surge in demand driven in part by power-hungry AI data centers will continue to grow. That has sent the company’s shares up more than 300% over the past 12 months, making the Texas-based company the best-performing stock in the S&P 500 index, which it joined less than a month ago. Utility stocks in the index have returned only about 10% over the same period, while their peers have lagged.
“Electricity demand is very strong and driven by the data-center deal,” but Vistra’s mix of gas-fired and nuclear plants makes it a “unicorn,” said Sharia Pourreza of Guggenheim, who has a Wall Street price target on the stock at a high of $133.
After hitting an all-time high earlier this week, shares tumbled on Friday after Vistra detailed plans to add natural gas capacity in Texas. Investors worry that could be “the tip of an oversupply iceberg,” Pourreza wrote in a client note, though he sees the change as “somewhat modest.”
array Goldman Sachs estimates that 50% of utilities are expected to benefit from the AI boom, and power demand from data centers is expected to more than double by 2030. But Vistra has positioned itself uniquely as one of the few publicly owned independent power producers, meaning that unlike regulated utilities, it sells electricity at market prices, helping to drive up its stock price.
Because Vistra is a direct market participant, “the clearest investment thesis is that wholesale electricity prices are going to go up,” Thomas Merrick, an analyst at Janney Montgomery Scott & Co., said in an interview.
Vistra’s role as a major player in Texas’ fast-growing electricity market and as a major owner of nuclear generating assets following its $6 billion acquisition of Energy Harbor Corp. has helped it attract investors. Its nuclear plants qualify for the Anti-Inflation Act’s electricity generation tax credit, which could attract deals with major AI players as well.
Data centers want clean, around-the-clock power, and “nuclear plants are a very powerful way to do that,” Guggenheim’s Mr. Pourreza said. Investors expect the company will be able to make deals directly with data centers. Energy Matching Agreement He added that an agreement had been reached between Constellation Energy and Microsoft.
Pourreza said other key catalysts going forward include the company’s first-ever earnings per share guidance and the company’s long-term outlook.
Even after the stock price surge, Vistra shares remain relatively cheap compared with other ways to get in on the AI and data-center boom, according to Janney’s Merrick. The stock trades for about 17 times next year’s earnings, well above Nvidia’s 37 times. Wall Street analysts are overwhelmingly favorable, with 10 of 11 surveyed by Bloomberg giving the stock a “buy” rating.
Morningstar analyst Travis Miller, who has the only sell recommendation on the stock, said the trends supporting the rally could stall. First, rising renewable generation could put pressure on traditional generators in Texas.
“The market is a little over-excited,” Miller said. Current analyst price targets suggest the stock could fall short at an average of $108, which would represent a 12% upside over the next 12 months, and even Pourreza’s high of $133 suggests the pace of upside will slow.
But for supporters, including activist investor Loeb, expanding renewable energy is another reason to invest: The intermittent nature of wind and solar power justifies legislation that favors natural gas plants like Vistra, which can be used in emergencies, he says. I have written In a letter from April.
Vistra was one of his hedge fund’s top five stocks for the first quarter, and Loeb pointed to demand for electricity from data centers and electric vehicles as another reason for his long-term confidence.
“Vistra is best positioned to take advantage of these trends,” he wrote. “We expect the discounts applied to Vistra’s assets to continue to narrow as Vistra’s operations become increasingly essential to meeting the nation’s electricity demand.”
