For the last two years, artificial intelligence (AI) has proven to be a generational influence for the stock market. It seems that every other week the S&P 500 or Nasdaq Composite are setting record highs -- and excitement around AI has a lot to do with that.
Naturally, large technology companies have been at the center of the AI storyline. Known as the "Magnificent Seven," Microsoft, Nvidia, Apple, Tesla, Meta Platforms, Amazon, and Alphabet have seen their stock prices ebb and flow on the latest AI developments seemingly every day.
Another area that's recently witnessed some outsized attention on the backdrop of AI narratives is nuclear energy. As of the time of this article, shares of nuclear energy firm Vistra Corp. (NYSE: VST) are up 222% in 2024 -- making it the top-performing stock in the S&P 500.
If you've never heard of Vistra or are unfamiliar with nuclear energy's role in the AI realm, you're in the right place. Below, I'm going to break down how nuclear energy could be a lucrative pocket of the AI landscape, and assess if Vistra's stock is a good opportunity right now.
What is fueling Vistra's stock right now?
Back in September, Microsoft announced that it signed a 20-year purchase agreement with nuclear power leader Constellation Energy. The primary focus of the deal is to re-open nuclear plants on Pennsylvania's Three Mile Island.
It wasn't long for some of Microsoft's Magnificent Seven cohorts to follow up with moves of their own.
In mid-October, Amazon announced that it is going to build small modular reactors (SMR) with the help of Dominion Energy and Energy Northwest. While Amazon's may appear to be in response to Microsoft's partnership with Constellation Energy, keep in mind that earlier this year Amazon Web Services (AWS) announced plans to power a data center using Talen Energy's nuclear capabilities.
Around the same time as Amazon's recent deals, Alphabet's Google announced that it will be buying SMRs from Kairos Power.
These deals have had a direct impact on nuclear power stocks, and the momentum illustrated in the chart below speaks for itself. In just the last three months, shares of popular nuclear power stocks such as Constellation Energy, Vistra, and Oklo have skyrocketed. Although it's fair to say that some of this momentum is correlated with the Magnificent Seven deals highlighted above, there is a case to be made that further gains are on the horizon.
Why Vistra's stock could just be getting started
One of the most popular technology analysts on Wall Street is Dan Ives of Wedbush Securities. He is frequently a contributor on financial news programs including CNBC and Bloomberg. Recently, Ives suggested that over $1 trillion will be spent on AI infrastructure over just the next three years.
Naturally, some of the bigger-ticket items of these capital expenditures (capex) will include semiconductor chips, graphics processing units (GPUs), upgrades in personal computing, and storage solutions such as server racks. An adjacent opportunity that should witness some tailwinds from these spending areas is data centers -- and that is where nuclear power comes into focus.
Data centers consume high levels of energy, and with AI becoming more of a staple for businesses of all sizes, these rates are expected to rise considerably over the next several years.
At the moment, common energy protocols for data centers include generators, fans, and air conditioning units. But with AI bringing a new level of energy consumption to the table, businesses are looking for more cost-efficient and sustainable alternatives compared to current mainstream solutions.
Nuclear energy is emerging as a new option for powering data centers. I think the deals highlighted above serve as an indication of nuclear power's popularity and importance, and I suspect that more large-scale partnerships will be announced over the next couple of years.
Image source: Getty Images.
Is Vistra's stock a buy right now?
The chart below benchmarks the forward price to earnings (P/E) multiple for Vistra against a small cohort of other nuclear power stocks.
VST PE Ratio (Forward) data by YCharts
At a forward P/E of roughly 22, shares of Vistra look reasonable compared to its peers -- with Constellation Energy being the anomaly trading at a premium.
But as I pointed out above, Vistra and related stocks have been soaring over the last couple of months. To me, these gains seem rooted in the positive outlook at the intersection of nuclear energy and AI, underscored by deals with big tech. At the end of the day, Vistra's recent share price appreciation has come with considerable valuation expansion.
I would argue that right now there is still momentum fueling shares of Vistra, and I think that some of the upside from demand for nuclear power combined with macro tailwinds in the AI industry have already been priced into the stock.
While I very much see Vistra as a compelling opportunity in nuclear power, I think the prudent strategy right now is to listen to the company's management during earnings calls and be on the lookout for any potential deals or partnerships the company is working on.
AI is a long-term play, and nuclear power is just one chapter in the broader story. Even though I like the idea of investing in Vistra and I see further gains on the horizon, long-run investors should have better opportunities to buy the stock over time once the company starts proving that it is emerging as a leader in the AI and nuclear power markets.
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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Constellation Energy, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Dominion Energy and 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.
