Shares in retail electricity and power-generation company Vistra (NYSE: VST) rose by a whopping 38.8% in September, according to data provided by S&P Global Market Intelligence. The move is somewhat unusual as much of it stems from an announcement at another company. Here’s the lowdown.
The Vistra peer I’m referring to is Constellation Energy, whose stock rose 32.2% in September. This was mainly due to Constellation announcing a 20-year power purchasing agreement with Microsoft to power its data centers with energy from Constellation’s Three Mile Island nuclear power plant.
According to a Reuters article, Microsoft may have agreed to pay up to $115 per megawatt-hour (MWh) as part of the deal. That figure is significant because, as previously discussed, it’s way above the total realized price of $51.2 MWh that Vistra received in its most recent quarter.
To be clear, Vistra currently generates 41,000 megawatts (MW) of power from various sources, including 24,000 from natural gas. Still, the market has gotten excited about its 6,400 MW from nuclear power and that it recently acquired 4,000 MW of that nuclear capacity via the purchase of Energy Harbor in March.
In addition, Vistra announced in September that it would buy the remaining 15% of Vistra Vision, which it didn’t own. Vistra Vision is the Vistra subsidiary that houses its nuclear-generation facilities, renewables, and energy storage businesses. The acquisition will increase Vistra’s exposure to nuclear and clean energy-powered electricity.
The leading cloud service providers, Amazon Web Services, Microsoft Azure, and Alphabet‘s Google Cloud, must ensure access to long-term power to support burgeoning demand from artificial intelligence (AI) applications. That’s why Microsoft is believed to have agreed to a price significantly above current spot prices for electricity with Constellation. Investors in Vistra are hoping their company can sign similar deals in the future.
Image source: Getty Images.
Looking at traditional metrics, such as the price-to-earnings ratio, will make Vistra’s stock look expensive. However, all it will take is one sizable long-term deal or two, and Wall Street analysts will be scrambling to upgrade their models and long-term earnings and cash-flow forecasts.
The latter is the key to the stock’s investment case, and if the AI revolution turns into an evolution, it might just happen.
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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. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, and Microsoft. 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.
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