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Vistra Energy vs. Nvidia: Which is the Better AI Stock to Buy?

Oleksandr Pylypenko - Barchart - Mon Sep 30, 8:42AM CDT

The intersection of the technology and energy sectors is becoming increasingly prominent as artificial intelligence (AI) continues to reshape industries. Vistra Energy (VST) and Nvidia (NVDA) stand out as two pivotal players, each capitalizing on the AI boom, but in markedly different ways. Surprisingly, Vistra Energy recently surpassed Nvidia as the top-performing S&P 500 Index ($SPX) stock of the year, driven by rising demand for electricity from data centers - key infrastructure for AI. This surge underscores a broader trend where traditional energy companies benefit indirectly from the tech sector’s exponential growth.

On the other hand, Nvidia, a titan in the AI space, has seen its stock trading in a range since hitting highs in June 2024. However, a notable development has emerged as Nvidia’s CEO reached a limit on his selling plan, potentially easing some of the selling pressure that might have contributed to the stock’s recent performance plateau. Despite Nvidia’s current stagnation, analysts are optimistic about the company’s long-term prospects, particularly as AI adoption accelerates across multiple industries.

In this article, we’ll compare Vistra Energy and Nvidia to determine which stock is the better buy for investors looking to capitalize on AI’s explosive growth.

The Case For Vistra Stock

Vistra Energy (VST) is one of the top retail energy producers in the U.S., boasting a capacity of approximately 41 gigawatts, driven by its diverse portfolio of nuclear, natural gas (NGX24), coal, and solar power generation, in addition to hosting one of the world’s largest utility-scale battery projects. Its market cap currently stands at $40.9 billion.

On Sept. 25, Vistra surpassed Nvidia to become the top-performing stock in the benchmark S&P 500. Notably, VST stock has rallied 205.6% on a year-to-date basis, significantly outperforming the broader market, as well as NVDA’s gain of 138.9% over the same period.

Vistra has soared due to its nuclear power business and high demand from power-consuming AI data centers. Barclays predicts that by 2030, data centers may represent over 9% of total power demand, up from just over a third of that figure currently. Goldman Sachs projects that global power demand from data centers could increase from 200 terawatt-hours (TWh) before the pandemic to over 1,000 TWh by 2030, a potential fivefold surge, primarily driven by AI. As a result, the company is well-positioned to leverage AI data center power needs with its unique mix of gas and nuclear power plants.

On Sept. 18, Vistra announced it had finalized agreements with affiliates of Nuveen Asset Management, LLC, and Avenue Capital Management II, L.P., to purchase their combined 15% equity stake in Vistra Vision LLC. This will make Vistra the sole owner of its Vistra Vision subsidiary, encompassing its zero-carbon nuclear, energy storage, and solar generation assets, along with its retail business. The company will acquire the 15% NCI in Vision for an undiscounted purchase price of $3.248 billion in cash.

On Sept. 11, Vistra unveiled a new program in collaboration with Sunrun (RUN). The partnership will combine Vistra's premier TXU Energy retail electricity brand with Sunrun’s Battery Rewards program to enhance grid reliability in Texas by aggregating power from residential solar-connected batteries. Under the agreement, TXU Energy customers with Sunrun home solar panels and batteries will receive financial incentives for participating, while maintaining control of their systems during power outages or severe weather conditions.

Vistra reported its second-quarter earnings results on Aug. 8. Its total revenue increased by 20.7% year-over-year to $3.85 billion, yet fell short of Wall Street’s estimates by $110 million. Net income for the quarter fell 1.9% year-over-year to $467 million, primarily due to higher depreciation and interest expenses, though partially mitigated by operating income generated from the acquisition of Energy Harbor.

However, Vistra reported strong ongoing operating adjusted EBITDA of around $1.414 billion, including $625 million from generation and $789 million from retail. This marks an approximately 40% year-over-year improvement, bringing its year-to-date adjusted EBITDA from ongoing operations to $2.227 billion.

Regarding the balance sheet, the company maintained a strong financial position, with net leverage at the end of the quarter standing at 3 times the adjusted EBITDA from ongoing operations. The company still anticipates that net leverage will fall below 3x by the end of 2024.

“While the team continues to deliver consistent operating and financial results, we also remain focused on executing our long-term growth initiatives. We’ve started construction on two new solar facilities, a 200 MW site backed by Amazon in Texas and a 405 MW site backed by Microsoft in Illinois. In addition, assuming successful implementation of market reforms, proper market signals, and other factors, we are planning to develop up to 2,000 MW of gas-fueled electric capacity in our home state to enhance grid reliability for customers,” said Jim Burke, president and CEO.

Looking forward, management reiterated its 2024 guidance for ongoing operations adjusted EBITDA, projecting a range of $4.550 billion to $5.050 billion. During the Q2 earnings call, Burke expressed confidence in the company’s ability to achieve toward the upper end of the guidance range. Moreover, the company increased the mid-point of its estimated 2025 ongoing operations adjusted EBITDA range by $200 million, now projecting it to be between $5.200 billion and $5.700 billion.

Analysts tracking the company forecast a 30.92% year-over-year rise in its earnings to $4.70 per share for fiscal 2024, accompanied by an expected 11.20% year-over-year increase in revenue to $16.43 billion.

As of Aug. 5, 2024, Vistra has completed approximately $4.25 billion in share repurchases since November 2021. It plans to allocate at least $2.25 billion to share repurchases throughout 2024 and 2025.

On the dividend side, VST’s annualized dividend of $0.88 translates into a forward yield of 0.75%. Notably, it features a five-year compound annual growth rate (CAGR) of 18.19%. On Aug. 1, the company declared a quarterly cash dividend of $0.2195 per share, which represents a 0.9% increase from the previous dividend of $0.2175, to be paid to shareholders on Sept. 30.

In terms of valuation, the forward price-to-earnings ratio of Vistra’s shares stands at 22.84 times, surpassing both the sector median of 18.12x and its own five-year average of 15.16x. Additionally, the company’s forward EV/EBITDA ratio is 12.23x, approximately on par with the sector median of 11.50x, yet significantly higher than its own five-year average of 7.95x. However, considering its robust recent growth and promising growth outlook, the company does not appear overly expensive.

What's the Analyst Forecast for VST?

On Sept. 25, Morgan Stanley analyst David Arcaro raised the firm’s price target on Vistra to $132 from $110 and kept an “Overweight” rating. Amid falling interest rates, the prospect of an economic slowdown, and anticipated data center upgrades, the firm believes the industry may outperform by about 5%. However, it also acknowledged the sector's varied performance in past soft landings.

On Sept. 12, Jefferies analyst Julien Dumoulin-Smith initiated coverage of Vistra with a “Buy” rating and a $99 price target. The analyst initiated coverage of the power sector with a constructive view, designating Vistra as its top pick. Notably, Jefferies raised its price target on the stock to $137 from $99 last Tuesday.

Vistra stock has a consensus “Strong Buy” rating. Among the 10 analysts covering VST, nine recommend a “Strong Buy” and one assigns a “Moderate Buy” rating. The mean target price for VST stock is $121.50, indicating an upside potential of only 3.2% from its Friday closing price.

The Case For Nvidia Stock

With a market capitalization of $2.98 trillion, NVIDIA Corporation (NVDA) is a leading technology company, distinguished for its expertise in graphics processing units (GPUs) and artificial intelligence solutions. The company is renowned for its pioneering contributions to gaming, data centers, and AI-driven applications.

Year-to-date, Nvidia shares have surged 138.9%, but have been trading within a consolidation range since reaching their peak in June. Recently, Nvidia CEO Jensen Huang completed his planned stock sales, cashing in over $700 million, potentially reducing further selling pressure on the stock. The executive set up a trading plan in mid-March to sell up to six million Nvidia shares by the end of the first quarter of 2025. However, he reached this threshold months ahead of schedule following numerous transactions between June 13 and Sept. 12, as revealed by a recent regulatory filing.

On Sept. 27, Bloomberg reported that Beijing is intensifying efforts to encourage Chinese companies to purchase domestically produced AI chips rather than those from Nvidia. Notably, Nvidia is prohibited from selling its most advanced chips to customers in China due to U.S. government restrictions. According to the report, Chinese regulators are pushing back, discouraging local companies from buying Nvidia’s permitted chips, such as the H20. Nvidia continues to rely on China, from which it derived 12% of its total revenue, amounting to $3.7 billion, in the second quarter.

On Sept. 26, investment firm Susquehanna noted that prices for Nvidia’s Hopper product line have remained robust in anticipation of the forthcoming Blackwell line. Susquehanna analyst Chris Rolland said that aftermarket prices for the H100 have been “relatively stable,” slightly under $30,000, marking a 0.6% decrease in the third quarter. Furthermore, there has been no increase in the supply of H100s in the secondary market, indicating that companies are holding their purchases.

Nvidia reported its financial results for the second quarter of fiscal 2025 on Aug. 28. The company posted a record total revenue of $30.0 billion in Q2, a 15% increase from the prior quarter and a 122% jump year-over-year, beating Wall Street’s expectations of $28.73 billion.

Data center revenue, which constitutes approximately 88% of total revenue, reached a record $26.3 billion, marking a 16% increase from the previous quarter and a 154% rise from the same period a year ago. This figure, exceeding the estimated $25.08 billion, was fueled by strong demand for NVIDIA’s Hopper, GPU computing, and networking platforms. Gaming revenue for the quarter climbed 16% year-over-year to $2.9 billion. Automotive revenue saw a 37% year-over-year increase to $346 million, while professional visualization revenue rose 20% year-over-year to $454 million. NVDA reported adjusted earnings per share of $0.68, exceeding analysts’ expectations by $0.04.

While the stock didn't exactly soar post-report, Nvidia’s Q2 results were generally well-received by Wall Street, leading several investment banks - including JPMorgan, Wells Fargo, BofA, and Morgan Stanley - to increase their price targets on the stock.

During the Q2 earnings call, management emphasized that customers are quickly ramping up their purchases of the Hopper architecture and are gearing up to adopt Blackwell. As a result, H200 shipments will likely increase in Q3, helping to maintain strong top-line growth until Blackwell shipments start ramping up later in the year. Notably, Blackwell production is scheduled to begin in the fourth quarter and will continue into FY26.

“Hopper demand remains strong, and the anticipation for Blackwell is incredible. NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI,” said Jensen Huang, founder and CEO of Nvidia.

The company expects a strong Q4 launch for Blackwell, projecting it will generate several billion dollars in revenue. The rumored delay is probably linked to improvements aimed at enhancing Blackwell’s production yields. Overall, Nvidia is projected to experience a substantial increase in Hopper shipments and revenues in both Q3 and Q4, with Q4 revenues expected to get an additional boost from Blackwell sales.

It’s also worth mentioning that BlackRock (BLK), Microsoft (MSFT), MGX, and Global Infrastructure Partners recently unveiled the Global AI Infrastructure Investment Partnership, aimed at investing in "new and expanded data centers to meet the growing demand for computing power, as well as energy infrastructure to create new sources of power for these facilities.” As anticipated, Nvidia will also “support” the venture, which aims to raise up to $100 billion for its initiatives.

For the third quarter of fiscal 2025, management projects revenue to be $32.5 billion, with a possible variance of plus or minus 2%. Additionally, the adjusted gross margin is expected to be 75.0%, plus or minus 50 basis points.

During the first half of fiscal 2025, the company distributed $15.4 billion to shareholders via share repurchases and cash dividends. The company currently offers an annualized dividend of $0.04 per share, translating into a forward yield of 0.03%. Moreover, the board approved a significant $50 billion share repurchase authorization, which complements the remaining $7.5 billion from prior authorizations.

Analysts tracking the company forecast a 124.58% year-over-year surge in its earnings to $2.65 per share for fiscal 2025. Also, Wall Street anticipates NVDA’s revenue to double year-over-year to $125.57 billion in FY25.

From a valuation perspective, the stock is trading at 42.73 times forward earnings, higher than the sector median of 24.42x, but still below its five-year average of 47.29x. The premium still appears well justified given the company’s strong growth potential.

How Do Analysts Rate NVDA Stock?

On Sept. 18, William Blair analyst Sebastien Naji initiated coverage of Nvidia with an “Outperform” rating. The analyst pointed out that Nvidia’s “long and storied history” in designing parallel computing systems for complex processing tasks has historically placed Nvidia at the forefront of niche markets such as gaming, automotive, visualization, and high-performance computing (HPC). However, the “rising AI tide has catapulted parallel computing to the forefront of the tech industry,” significantly boosting demand for the company’s GPUs and parallel computing stack. The analyst added that Nvidia's data center revenue increased by 217% in fiscal 2024 and is projected to grow by 132% in fiscal 2025, surpassing $110 billion, up from $15 billion in fiscal 2023.

Analysts maintain an overwhelmingly positive outlook on Nvidia, as evidenced by the consensus “Strong Buy” rating. Of the 40 analysts covering NVDA, 35 recommend a “Strong Buy,” two suggest a “Moderate Buy,” and three rate it as a “Hold.” The average target price for the stock is $149.47, suggesting an upside potential of approximately 23% from its Friday closing price.

VST vs. NVDA: Which is the Better AI Stock to Buy?

Both Vistra and Nvidia undoubtedly have significant long-term upside potential, but at the moment, Nvidia appears to be the better buy for me at current levels. NVDA posted exceptional results in its most recent quarter, and I remain confident that the upcoming rollout of Blackwell products will serve as a major catalyst for the stock, potentially driving it back to its June highs.

As for Vistra, the company will continue to see increasing demand from AI data centers - but VST stock saw a significant surge in September alone, and it appears that further upside may be limited, with the potential for a near-term pullback. Although both stocks carry a “Strong Buy” rating, NVDA offers a substantially higher upside potential compared to its average price target. Putting it all together, I believe NVDA is the better AI stock to buy right now.

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.