AI Stock Frenzy Cools, US Power Co. Plummets More Than Nvidia

On Friday, amidst the AI boom, the "hidden winner" Texas power producer Vistra saw its stock plummet by as much as 10% during trading. Although the decline was somewhat mitigated by the close, with a near 6% drop, it significantly underperformed compared to the Nasdaq 100, which also experienced a deep dive but almost fully recovered by the end of the day.

In fact, Vistra had just set a historical high earlier in the week. The company's expansion plans for natural gas capacity have sparked a certain degree of market concern, and coupled with an overall market sentiment that has recently trended towards risk aversion, the stock's upward momentum has stalled.

Over the past 12 months, Vistra's stock has surged by more than 300%, making it the best-performing stock in the S&P 500 index. Having joined the S&P 500 less than a month ago, its performance has far outpaced other utility stocks (which have seen a return of about 10% during the same period), and even the Wall Street favorite Nvidia's gains cannot match it.

The main logic driving the significant increase in Vistra's stock is the massive electricity consumption of artificial intelligence data centers. Investors are betting on a sustained increase in power demand, especially for AI data centers.

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According to Goldman Sachs' estimates, the AI boom will more than double the power demand for data centers by 2030, with many utility companies expected to benefit. As one of the few public independent power generation companies, Vistra stands out because it sells electricity at market prices, unlike regulated utility companies, which has propelled its stock price higher.

Vistra holds a significant position in the electricity market in Texas and, after acquiring Energy Harbor for over $6 billion, has become one of the major nuclear power generators. These factors have attracted investors. Additionally, the company's nuclear power plants are eligible for power generation tax credits, which could attract contracts from major AI companies.

Guggenheim analyst Shahriar Pourreza believes:

"Power demand is very strong, primarily driven by transactions from data centers. Vistra's combination of natural gas and nuclear power plants makes it a 'unicorn'. Data centers are looking for clean power, and nuclear power is a very strong option. Investors expect the company to be able to sign contracts directly with data centers, similar to the agreement between Constellation Energy and Microsoft."

The sharp drop in stock prices on Friday was due to investor concerns that the expansion of natural gas production could be the beginning of a supply glut, but he believes these changes are relatively mild.

Guggenheim's target price for Vistra is $133, the highest on Wall Street, more than 30% higher than Vistra's closing price on Friday.Some market participants have noted that Vistra's stock remains relatively cheaper compared to other AI concept stocks even after a surge. Wall Street analysts generally hold a positive attitude towards it.

However, Travis Miller, an analyst at Morningstar, is an exception. He believes that the trend driving Vistra's rise may weaken. One reason is that the growing renewable energy generation could squeeze Vistra's traditional power generation. In addition, market sentiment is a bit too excited.

Billionaire Daniel Loeb, founder of Third Point LLC, has also placed a big bet on Vistra. Loeb believes that the expansion of renewable energy is precisely the reason for further investing in Vistra. He previously stated that the intermittent nature of wind and solar energy is beneficial to natural gas power plants like Vistra, which can provide electricity in emergencies.

The demand for electricity from data centers and electric vehicles is another reason for his long-term confidence in Vistra.

Vistra is well-positioned to capitalize on these trends. As the company's business becomes increasingly important to meet domestic electricity needs in the United States, it is expected that the discount on its assets will continue to narrow.