A Texas-based power company that only joined the S & P 500 two months ago is the third-best performing stock in the index this year, boosted by the same demand for everything connected to artificial intelligence. Vistra Corp. , based in Irving, Texas outside Dallas, was added to the benchmark stock index in May , only a few months after the power company assembled from Texas Utilities Co. and Dynegy Inc. joined the S & P MidCap 400 last fall. Fast forward to today and Vistra stock has soared 139% this year, adding $18.5 billion to its market cap, which now totals $32 billion, according to FactSet data. That trails only Super Micro Computer and Nvidia , the two heavyweights that are powering the AI revolution with their servers and chips. Vistra owes its bull market to the energy crunch facing the U.S. as data centers use ever more electricity to power AI, manufacturing “reshoring” returns to the U.S. and as industry and vehicles are increasingly electrified. “We are always surprised when you see a move the size that we’ve seen, but I think it’s been a long time building,” Jim Burke, CEO of Vistra, told CNBC’s “Closing Bell” Tuesday. “For seven years we’ve been growing our company with this electrification theme in mind.” Burke said Vistra suddenly lit up investors’ radar screens after joining the S & P. At the same time, the technology leaders that are investing billions in AI data centers are also turning to Vistra, according to the CEO. “Folks are coming to Vistra and they are saying, ‘I need a large scale data center and I need power and I need it quickly,'” Burke said. “And because we’re a competitive company, we can move quickly. And so we’re having lots of conversations with all these biggest customers.” VST YTD line Vistra shares in 2024. Nuclear revival Competition is key to Vistra’s success. One of the best ways to profit from rising demand for electricity is to hold independent power producers like Vistra because, unlike regulated utilities, the company is able to dispatch power based on economics, said Shahriar Pourreza, senior managing director of North American power and utilities at Guggenheim Securities. Vistra also owns nuclear power plants, one of the most in-demand power sources in the 2024 market because reactors burn no fossil fuel and emit no greenhouse gases . The company completed the acquisition in March of two nuclear plants in Ohio and one in Pennsylvania through its $3.4 billion purchase of Energy Harbor . The expectation is that data centers will want to contract directly for power from nuclear plants because they provide reliable, carbon-free power around the clock, Pourreza said. Vistra’s baseload generation capacity was 58% natural gas, 20% coal, 15% nuclear, 6% renewables and 1% oil, according to a fourth-quarter 2023 earnings presentation . “For the Vistras out there, what that means is, they’ll be selling power to a data center at above market rates, which is materially higher than the current curves,” Pourreza, the Guggenheim analyst, told CNBC. “And not only will it then be selling power at above market rates, they’ll also be selling that power over a long term contract.” Vistra will not only benefit from premium pricing but also cash-flow certainty with a strong counterparty, Pourreza said. Guggenheim has a buy rating on Vistra stock with a price target of $133, implying 44% upside from Wednesday’s close of $92.31. Wall Street is broadly bullish on Vistra too, with 85% of the 13 analysts who cover the company carrying the equivalent of a buy rating, according to FactSet data. Analysts’ average price target is $117 per share, or 26% above the last close. Though Vistra hasn’t yet announced a deal with a data center operator, the tech sector is clamoring for power from the existing nuclear fleet in the U.S. Amazon Web Services in March bought a data center powered by nuclear energy from Talen Energy for $650 million. The cloud service giant is also in talks with Constellation Energy for electricity supplied from a nuclear plant on the East Coast, people familiar with the matter recently told The Wall Street Journal . Gold rush “The gold rush is on,” Mark Nelson, founder of Radiant Energy Group, told CNBC’s “Last Call” in June. “The existing nuclear plants are the hottest thing in power right now. They’re going to be able to nearly name their price to build out to data centers that are parked right at their gate.” Constellation, the largest operator of nuclear plants in the U.S., has gained 87% this year, the fourth-best performing stock in the S & P 500 behind Vistra. CEO Joseph Dominguez told analysts on Constellation’s first-quarter earnings call that the company is seeing more interest in nuclear than natural gas “because the clients we’re dealing with aren’t interested, as a general rule, in [gas] emitting technologies.” Guggenheim has a buy rating on Constellation and a price target of $242, implying 10% upside from Wednesday’s close of $219.55 per share. Wall Street, too, is generally bullish on Constellation, with 67% of analysts rating it the equivalent of a buy, with an average price target of $235, suggesting 7% upside. While tech companies are focused on carbon-free energy to meet their climate goals, Pourreza said Vistra’s large fleet of gas assets in Texas are also coveted because natural gas “is becoming a resource to maintain the stability” of the electrical system. Vistra doesn’t need to sell debt or stock, is buying back stock, generating positive cash flow and has credit metrics that are “basically in investment grade territory,” Pourreza said. S & P has a BB rating for Vistra and revised its outlook to positive in March after Vistra closed the Energy Harbor deal. “That’s pretty valuable in this kind of a market, when you don’t have to access the debt markets and issue equity,” the analyst said.
