The broader benchmark S&P 500 has ripped all year and is now up nearly 22%. The index is a bellwether for the entire market and includes 500 larger companies in many industries. Technically, the S&P 500 has more than 500 stocks because some companies have multiple classes of shares. With such a wide sample size, many stocks in the S&P 500 have performed worse than the broader index and many have performed better.
Here are the four hottest stocks in the S&P 500 so far this year, and believe it or not, only one is in the "Magnificent Seven." Can you still buy these stocks after such a good run?
1. Vistra Corp -- 224%
Utility stocks have had a bang-up year, as lower interest rates have led investors to gravitate toward dividend-paying stocks. However, something else has been fueling Vistra(NYSE: VST), the largest competitive power generator in the U.S. That, of course, is artificial intelligence. Interestingly, Vistra looks to be a potential "picks and shovels" trade for the AI sector, but in a very different way than semiconductors. AI is powered by data and data centers, which are very energy-intensive. Tech companies believe a good alternative could be to connect data centers to nuclear plants. Vistra owns four nuclear reactors after acquiring Energy Harbor in 2023.
2. Nvidia -- 172%
Investors shouldn't be surprised to see this name on the list, considering it's been arguably the most talked about ticker in the investing world. Nvidia(NASDAQ: NVDA) is the classic "picks and shovels" play on AI, designing chips that make AI possible. Nvidia's chips are used by some of the world's largest and most innovative tech companies, including OpenAI, Amazon, Google, and Microsoft. Some analysts estimate that Nvidia's market share for the AI semiconductors that helped make ChatGPT technology possible is between 70% and 95%. Since the start of 2023, Nvidia's revenue and profits have grown like a weed.
NVDA Revenue (Quarterly) data by YCharts.
Palantir -- 153%
Palantir Technologies(NYSE: PLTR) went public during the pandemic in 2020, and it's been quite the ride ever since, with the stock up almost 370%. What does Palantir do? You guessed it: AI. Palantir uses AI to help people and organizations analyze vast quantities of data in a user-friendly way that doesn't require them to learn some of the more complex languages and techniques at the core of AI.
Palantir has constructed platforms that use AI to manipulate and manage data. The company then builds applications atop these platforms so humans with no AI expertise can analyze this data. The company's largest client is the U.S. government, and it has gotten large contracts with the U.S. State Department and the U.S. Army.
Constellation Energy -- 127%
Constellation Energy(NASDAQ: CEG) is the largest carbon-free energy producer in the U.S. It's based in Baltimore and owns sustainable energy assets, including wind and solar farms and hydropower plants. Roughly 90% of the energy from Constellation is carbon-free, and the company is responsible for 10% of all carbon-free energy in the U.S. Constellation also owns 21 nuclear reactors at 12 sites across the country, making it the largest operator of nuclear reactors in the U.S. Investors believe it could be a critical asset in the future powering of data centers and AI.
Earlier this year, Constellation's CEO Joe Dominguez cited AI as one of the industries it is seeing demand from in terms of nuclear energy. Constellation is projecting that major tech companies will invest $1 trillion in data centers over the next five years.
Are these AI stocks buys?
AI has driven stocks to meteoric valuations, and this sentiment can be seen in the current price-to-earnings ratios of these four stocks.
NVDA PE Ratio data by YCharts.
All these companies are compelling given what they do and the potential for AI to fundamentally shift almost every aspect of our lives. I've never been a huge growth investor who buys companies at massive valuations. That's because the margin for error gets slim, and a simple miss on earnings or disappointing guidance can send the stock tumbling.
But for long-term investors who can handle some volatility, I think all of these stocks offer promise. Of these four, I like the utility names like Constellation and Vistra better right now. They've gotten expensive as a group, but pay dividends and are not entirely dependent on AI. So they can benefit from the AI boom, but also have other sources of business to fall back on if AI stumbles.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
