A retail electricity provider and power generator has outshone the glamor technology stocks this year.
Power utilities aren’t always seen as the most exciting way to invest, but investors might need to rethink that opinion, because the top-performing S&P 500 index stock of the year is retail electricity and power generation utility Vistra (VST 3.12%), which is up a whopping 210% this year. This significant rise beats Nvidia’s (NASDAQ: NVDA) 155% increase. The two events are not unconnected. Here’s why and how Vistra stock has performed so well this year.
Data Centers, Electricity Demand, and Clean Energy
It’s no secret that the burgeoning demand for artificial intelligence (AI) applications is the reason for the step change in expectations for data center demand. This increased demand is fueling the need for graphics processing units (GPUs) and high-performance computing chips. While technology companies like Nvidia and Taiwan Semiconductor Manufacturing are obvious beneficiaries, other sectors are also getting attention.
Companies and utilities such as Vistra and Constellation Energy (CEG 0.09%) are becoming essential players in this evolving landscape, particularly regarding the need to power data centers and increased electricity demand. Their ability to adapt and provide energy solutions aligns well with the ongoing clean energy transition.
Vistra’s Expansion and Nuclear Investments
Vistra is a retail electricity and power generation company that, at the end of 2023, served 4 million retail customers. The acquisition of Energy Harbor in March added another 1 million customers and 4,000 megawatts (MW) of nuclear generation capacity, making Vistra “the largest competitive power generator in the country.” The company now boasts a total of 41,000 MW capacity, including 2,400 MW from nuclear power.
Investors are increasingly interested in nuclear energy due to its clean, sustainable, and zero-carbon attributes, especially as coal plants are being phased out in accordance with clean energy goals. This shift in sentiment plays a crucial role in Vistra’s stock performance.
The Clean Energy Transition
While the clean energy transition is universally acknowledged, the pace and sentiment surrounding it have evolved significantly. The long-term outlook for renewable energy remains positive, with natural gas expected to continue playing a critical role in energy generation for decades.
Vistra’s energy portfolio is favorable in this context, as about 24,000 MW of its capacity comes from natural gas. The favorable sentiment surrounding natural gas and confidence in Vistra’s 6,400 MW nuclear capacity have positively influenced its stock price this year.
Partnerships with Major Tech Companies
The demand for reliable power sources to support data centers has led major cloud service providers such as Amazon Web Services, Microsoft Azure, and Alphabet’s Google Cloud to forge long-term power purchase agreements (PPAs) with Vistra.
A particularly noteworthy deal was struck between Microsoft and Constellation Energy, where Microsoft committed to purchasing power for its data centers while Constellation will restart the Three Mile Island nuclear plant to fulfill this agreement. This collaboration has excited the market, especially given the favorable pricing terms, with Microsoft agreeing to pay up to $115 per megawatt-hour (MWh). In comparison, Vistra’s total realized price was $51.20 MWh in Q2 2024, indicating significant upside potential for future market pricing.
A Stock to Buy
The bullish case for Vistra hinges on the significant upside potential for nuclear-powered energy pricing, as evidenced by the Microsoft/Constellation deal and the increasing demand stimulated by AI. The recent acquisition of Energy Harbor further strengthens Vistra’s market position.
Moreover, Vistra’s announcement to buy the remaining 15% of its Vistra Vision subsidiary, which focuses on zero-carbon nuclear, energy storage, and solar generation, underscores its commitment to clean energy solutions. As Vistra’s portfolio includes natural gas, nuclear, and renewable energy capabilities, it stands well-positioned in the ongoing clean energy transition.
Should You Invest $1,000 in Vistra Right Now?
Before investing in Vistra, consider the following:
While Vistra has shown impressive growth, The Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks for investors to buy now—Vistra did not make this list. The recommended stocks have the potential to yield substantial returns in the coming years.
It’s worth noting that Nvidia was also on this list when it was recommended in April 2005, turning a $1,000 investment into $743,952. Stock Advisor’s total average return is 773%, vastly outperforming the S&P 500’s 168%. Don’t miss out on the latest top 10 list, which could offer promising investment opportunities.
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