Texas Utility Stock Powers Nvidia in 300% AI-Fueled Rally

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(Bloomberg) — Demand to feed artificial intelligence engines has helped vault shares of Vistra Corp., one of the leading U.S. power producers, even higher than Wall Street darling Nvidia Corp.

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Investors, including Daniel Loeb, the billionaire founder of ThirdPoint LLC, have been snapping up Vistra stock under the bet that the massive boom in demand — driven in part by power-sucking AI data centers — will only increase. That has sent shares up more than 300% over the past 12 months, making the Texas-based firm the best performer in the S&P 500 index — a benchmark it has held for less than a month. Joined earlier. Utility stocks in the index outperformed peers with returns of about 10% over the same period.

“Electricity demand is very strong, and it's driven by the data center trade,” but Vistra's mix of gas and nuclear power plants makes it a “unicorn,” according to Guggenheim's Shahryar Porreza, who has researched Wall Street. But the stock was set at its highest price target. At $133.

After touching all-time highs earlier in the week, shares sold off Friday as Vistra detailed plans to increase natural gas capacity in Texas. Investors are concerned that this could be the “tip of an oversupply iceberg,” Porreza wrote in a note to clients, but they view the changes as “somewhat modest.”

An array of utility companies are expected to benefit from the AI ​​boom that will see data center power demand more than double by 2030, according to Goldman Sachs estimates. 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 — has put it in a league of its own and happy shares. I have left.

As Vistra is a direct market participant, “the most obvious investment thesis is that wholesale electricity prices are going to rise,” Thomas Merrick, an analyst at Janney Montgomery Scott, said in an interview.

Vistra's role as a major player in Texas' growing power market and — after its more than $6 billion acquisition of Energy Harbor Corp. — as a major owner of nuclear generation capacity are helping to attract investors. are With the company's nuclear fleet eligible for power generation tax credits from the Inflation Reduction Act, it could also attract contracts from major AI players.

Guggenheim's Porreza said data centers are looking for around-the-clock clean electricity, and “nuclear plants are a very strong avenue for that.” He added that investors are expecting the company to contract its plants directly with data centers, similar to the energy deal between Constellation Energy Corp. and Microsoft Corp.

Read more: The secret winner of the AI ​​boom? Companies expected to power it.

Poriza said other key future catalysts will be the company's first earnings per share guidance and the company's long-term outlook.

Even after the run, Vistra's stock screens are relatively inexpensive compared to other ways to drive AI and data center acceleration, according to Janney's Merrick. The company trades at about 17 times next year's earnings, compared to Nvidia's multiple of 37. Wall Street analysts are overwhelmingly positive, with 10 out of 11 surveyed by Bloomberg giving the stock a buy rating.

Morningstar analyst Travis Miller, who has a sell-only recommendation on the stock, said the trends that fueled the rally could be easing. For one thing, growing renewable generation could squeeze legacy power generators in Texas.

“The market has gotten a little overexcited,” Miller said. “Current analyst price targets suggest that cooling could be ahead with an average of $108, implying a 12% upside over the next 12 months, and even Porreza's The $133 street high also suggests slow profit momentum.

But for followers, including activist investor Loeb, the expansion of renewable energy is another reason to buy. The intermittent nature of wind and solar power supports the legislative case in favor of natural gas plants, such as Vistra, which are available in a pinch. wrote in a letter dated April.

Vasra was one of his hedge fund's top five winners in the first quarter, and Loeb cited power demand from data centers and electric vehicles as another reason for long-term confidence.

“Vastra is in a prime position to take advantage of these trends,” he wrote. “We expect the discount applied to their assets to continue to decrease as their business becomes increasingly necessary to meet domestic electricity demand.”

– With help from Noreen S. Malik.

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