Riding the AI Wave: Texas Power Play Soars 230%

In the heart of Texas, a once-overlooked utility company, Vistra Corp., has emerged as an unlikely beneficiary of the artificial intelligence (AI) boom. The company, which specializes in selling electricity at market prices, has seen its stock price surge by over 230% in the past year, making it the best performer in the S&P 500 Index. The rally can be largely attributed to the insatiable power demand from AI data centers, driving up wholesale power prices.

Vistra's unique position as a public independent power producer has set it apart from traditional utilities. Unlike its regulated counterparts, Vistra sells electricity at market prices, allowing it to capitalize on the surging demand for electricity, particularly in the Texas power market. With its nuclear fleet eligible for power-generation tax credits from the Inflation Reduction Act, Vistra is well-positioned to attract deals with major AI players seeking round-the-clock clean power.

Data centers, in search of reliable, clean power sources, find nuclear plants to be a strong fit for their needs. Investors anticipate that Vistra will be able to contract its plants directly with data centers, similar to the energy-matching agreement between Constellation Energy Corp. and Microsoft Corp. As the company's first earnings-per-share guidance and longer-term outlook are set to be revealed, Vistra's stock is expected to continue its upward trajectory.

Analysts remain overwhelmingly positive on Vistra's stock, with 10 out of 11 surveyed by Bloomberg giving the shares a buy-equivalent rating. Guggenheim's Shahriar Pourreza, who assigned the stock its highest price target on Wall Street at $133, sees Vistra as a 'unicorn' with a high price target. Even after the remarkable run, Vistra's stock screens relatively inexpensive compared to other ways to play the AI and data-center booms, trading around 17 times the next year’s earnings, compared to Nvidia's multiple of 37.

The AI boom has created a wild-west-style atmosphere in the Texas power market, offering untapped opportunities for savvy investors. As AI demand continues to grow, Vistra's stock is poised to remain a key beneficiary, capitalizing on the surging power demand from data centers.