There’s one stock in the S&P 500 that is crushing even Nvidia right now. Shares of Vistra (NYSE: VST) have rocketed higher by 205% so far in 2024 a single-year performance almost unheard of for a company that operates in the utilities industry. But it’s mostly thanks to the AI boom, and here’s why.
Nvidia was the top-performing S&P 500 stock in 2023
Nvidia stock ended 2023 with a 239% gain, making it the best performer in the entire S&P 500 for the year. It benefited from a tidal wave of spending from the world’s largest data center operators, including Microsoft, Amazon, Alphabet, Oracle, and more, all of which continue to battle for AI supremacy.
Developing the largest AI models and therefore the smartest AI applications requires significant computing power, and Nvidia’s H100 graphics processor (GPU) was the industry’s most powerful chip last year. The above data center companies continue to buy the H100, but they are eagerly awaiting a new generation of GPUs based on Nvidia’s Blackwell architecture.
Nvidia is on track to generate $125.5 billion in total revenue in fiscal 2025, which would be a 125% increase from the prior year. But data center spending is still climbing, and Huang believes operators will allocate $1 trillion toward building new infrastructure over the next five years.
All of those data centers are going to drive a surge in demand for electricity, and that’s where Vistra comes in.
Vistra is an unlikely beneficiary of the AI revolution
According to Goldman Sachs, a typical ChatGPT query consumes 10 times more electricity than a Google search. That’s part of the reason AI data centers could represent 4% of all energy consumption worldwide by 2030, potentially doubling from 2% today.
Vistra is an electricity company based in Texas. It has a generation business that produces electricity through its portfolio of coal, natural gas, solar, and nuclear facilities. It also has a retail arm that distributes electricity to more than 5 million residential, commercial, and industrial customers across 16 U.S. states.
Clean energy sources like nuclear, solar, and natural gas are popular among climate-conscious tech companies. Microsoft, for example, wants to be carbon negative, water positive, and zero-waste across its entire organization by 2030, and it appears to be on track to achieve those goals.
In the second quarter of 2024, Vistra announced it signed two long-term renewable power purchase agreements, one with Microsoft and the other with Amazon. The company will build two large-scale solar facilities to fulfill those deals, but further specifics are not yet available.
Here’s something we do know. Microsoft recently signed a 20-year deal for nuclear power with Constellation Energy, and it will pay an estimated $100 per megawatt-hour double the going rate today. In other words, Microsoft is anticipating that energy supply will become so tight because of demand from AI data centers that it’s willing to pay a premium to secure its needs for the future.
Published on 07/10/2024
By Michael S.
