(Bloomberg) — Demand to power the engines of artificial intelligence has helped send shares of one of America’s biggest power producers, Vistra Corp., soaring even higher than the darling of Wall Street, Nvidia Corp.
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Investors, including Daniel Loeb, the billionaire founder of Third Point LLC, have acquired Vistra shares in a bet that the massive explosion in demand — fueled in part by energy-guzzling AI data centers — will only grow. That has spurred shares to a gain of more than 300% over the past 12 months, making the Texas-based company the top performer on the S&P 500 index – a benchmark it joined less than a year ago. a month. Peers lagged, with utility stocks in the index returning about 10% over the same period.
“Electricity demand is extremely strong and is driven by the data center business,” but Vistra’s combination of gas and nuclear plants makes it “a unicorn,” according to Guggenheim’s Shahriar Pourreza, who assigned the title. its highest price target on Wall Street. at $133.
After hitting an all-time high earlier this week, shares sold off Friday as Vistra detailed plans to add natural gas capacity in Texas. Investors fear this is “the tip of a surplus iceberg,” Pourreza wrote in a note to clients, but he considers the changes “somewhat modest.”
Many utility companies stand to benefit from the AI boom, with data center energy demand expected to more than double by 2030, according to Goldman Sachs estimates. But Vistra’s position as one of the few independent public power producers – a status that means it sells electricity at market prices, unlike regulated utilities – has left it in a category apart and supported his actions.
With Vistra a direct market participant, “the clearest investment thesis is that wholesale electricity prices will rise,” Thomas Meric, an analyst at Janney Montgomery Scott, said in an interview.
Vistra’s role as a major player in Texas’ booming electricity market and, following the more than $6 billion acquisition of Energy Harbor Corp., as a major owner of the nuclear production capacity, helps attract investors. With the company’s nuclear fleet eligible for tax credits for electricity generation under the Inflation Reduction Act, it could also attract pacts from major AI players.
Data centers are looking for clean energy around the clock, and “nuclear power plants are a very efficient way to do that,” said the Guggenheim’s Pourreza. Investors expect the company to be able to contract its plants directly to data centers, similar to an energy matching agreement between Constellation Energy Corp. and Microsoft Corp, he added.
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Other key catalysts going forward would be the company’s early earnings per share guidance and the company’s longer-term outlook, Pourreza said.
Even after execution, Vistra’s stock displays are relatively inexpensive compared to other ways to play the AI and data center boom, according to Janney’s Meric. The company trades for about 17 times next year’s earnings, compared to a multiple of 37 for Nvidia. Wall Street analysts are overwhelmingly positive, with 10 of 11 surveyed by Bloomberg giving the shares a buy-equivalent rating.
Morningstar analyst Travis Miller, who has the only sell recommendation on the stock, said the trends fueling the rally could weaken. On the one hand, the growth of renewable energy production could undermine Texas’ legacy electricity producers.
“The market has gotten a little too overexcited,” Miller said. Current analyst price targets suggest a slowdown could be ahead with an average of $108 implying a 12% gain over the next 12 months, and even Pourreza’s high of $133 suggests a slower rate of gains.
But for its supporters, including activist investor Loeb, the expansion of renewable energy is another reason to embrace it. The intermittent nature of wind and solar power argues for legislation favoring natural gas plants, like Vistra’s, that are available in a pinch, he says. ” wrote in an April letter.
Vistra was one of his hedge fund’s top five gainers in the first quarter, and Loeb cited demand for electricity from data centers and electric vehicles as another reason for his long-term confidence.
“Vistra is in pole position to capitalize on these trends,” he wrote. “We expect the discount applied to their assets to continue to decline as their operations become increasingly critical to meeting domestic electricity demand. »
–With assistance from Naureen S. Malik.
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