We recently published a list of 10 Stocks That Will Benefit From AI. In this article, we are going to take a look at where Vistra Corp. (NYSE:VST) stands against other stocks that will benefit from AI.
Artificial intelligence has been the driving theme of the stock market over the past couple of years which have seen investors battle inflation and high interest rates. Ever since OpenAI publicly released ChatGPT in November 2022 and NVIDIA CEO Jensen Huang predicted the next year that there was a trillion-dollar market in play when it came to upgrading traditional computing hardware to accelerated computing, the stock market has seen no respite.
However, when it comes to AI stocks, not all of them have flourished. Apart from Huang’s firm, the world’s leading graphics processing unit (GPU) designer, shares of OpenAI’s biggest backer, i.e., the firm known for the Windows operating system, were two of the biggest initial AI beneficiaries. Between December 2022 and H1 2024, their shares have gained 631% and 75%, respectively. Other technology stocks have also ridden the AI wave and have posted gains ranging between 42% to 308%. Within these, the stock that has gained 308% is Facebook’s parent entity and its focus on GPU investments and success with the Llama open source model have caught investor attention.
These firms have primarily posted gains because the AI wave, as analysts would like to remind you, is in its early stages. This stage is characterized by investor interest in firms that are AI enablers. However, the next stage of AI investment could see investors broaden their horizons. Some of this diversification away from technology stocks has already taken place in the form of impressive performance by utility stocks in 2024. Their performance is evident through the utility component of the flagship S&P index gaining 28% from the start of the year to the end of November as it led the benchmark index by a percentage point.
We analyzed this stage in AI investment in great detail as part of our coverage of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks. Stocks in this list range from utility firms to computer hardware providers, semiconductor firms, and glass companies. Within this list, data center hardware firms were quite common, and as you read below, you’ll find out why they might be the biggest beneficiaries of the next wave in AI investment.
Wells Fargo has extensively covered the topic of what other stocks apart from the most valuable in the world can benefit from artificial intelligence. Its research covers firms that benefit from AI spending and applications. Starting from stocks that might benefit from AI spending, the bank notes that these will primarily include areas where the money trickles from AI data spending. In 2025, it estimates that hyperscaler cloud providers’ capital expenditures can sit around a cool $180 billion. This is more than twice the expected spending by oil majors, which is estimated to sit at close to $85 billion.
So where will this money trickle down to? Well, WF believes that while the “largest portion of cost involved in constructing data centers is graphics processing units (GPUs) and the supercomputers that contain them,” other sectors that should not be ignored include “cabling; steel racks; cooling (liquid and air); electrical equipment (both inside and outside the box); and backup generators” along with others that “are required to lay the foundation and power generation to support the facility.” While it lists down the usual culprits of information technology, communications services, and software firms that are part of discretionary stocks as the beneficiaries of data center spending, WF also adds two other sectors. These are industrial and material stocks, as the bank believes that while a “data center may not be a factory, but if it walks like a duck and quacks like a duck, it might be a duck.”
It quotes research to share that since as much as 45% of the cost of building a data center “is related to land, building shell, and basic building fit-out,” firms that “supply steel, aggregates, cement, and water equipment and, by extension, construction and engineering firms as well as broad non-residential construction suppliers (such as industrial distributors)” can benefit from the $180 billion in estimated hyperscaler capital expenditure. WF adds that data center spending will also include electrical and HVAC systems, as it notes that this sector can benefit from the fact that “there are a relatively limited number of scaled suppliers of large electrical equipment, commercial HVAC systems, and diesel generators.”
For some materials and industrial stocks, you can check out 10 Best Materials Stocks to Buy According to Hedge Funds and 20 Industrial Stocks Already Riding the AI Wave.
Solar panel workers installing a new farm for clean energy generation.
Our Methodology
To make our list of stocks that will benefit from AI, we ranked the stocks part of our list of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks and ranked them by the number of hedge funds that had bought the shares in Q3 2024. This upgrades the list since it was published when the latest hedge fund data was unavailable and it narrows down the list of stocks to the top fund favorites.
Why are we interested in stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders In Q3 2024: 97
Vistra Corp. (NYSE:VST) is one of the top-performing stocks of 2024 as its shares are up by a whopping 305% year-to-date. It is a Texas-based utility, and as you might have guessed, the firm has wide exposure to the nuclear industry. Vistra Corp. (NYSE:VST) also benefits from being an unregulated utility which enables it to self-set rate of returns on its power generation projects. The stock has risen in 2024 after the firm’s decision to bring a nuclear business fully under its fold sent the shares soaring by 25%. Vistra Corp. (NYSE:VST) also scored another win this year when regulators approved its request to extend the operational life of a nuclear power plant. For full-year 2024, the firm aims to earn between $5 billion to $5.2 in operating income and $2.65 billion to $2.85 billion in free cash flow. Along with deals with data center firms for clean energy and the regulatory environment for future projects, these also play an important role in Vistra Corp. (NYSE:VST)’s story.
Meridian Funds mentioned Vistra Corp. (NYSE:VST) in its Q3 2024 investor letter. Here is what the fund said:
“Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company, primarily serving Texas and the Midwest. We own Vistra because we expect power markets to continue tightening as baseload supply declines, coupled with rising demand from data centers, electric vehicles, and manufacturing reshoring. These factors create a favorable pricing environment for Vistra’s generation fleet, especially its nuclear and gas assets. The stock performed well during the period for three key reasons: tightening energy markets and strengthened pricing in forward-year energy contracts, the continuation of Vistra’s aggressive share repurchase program, and the company’s announced plan to acquire the remaining interest in Vistra Vision at an attractive valuation. Additionally, the company reaffirmed its 2024 guidance, indicating that results are trending toward the upper end of the previously projected range. We took advantage of the stock’s strength this quarter to trim our position.”
Overall, VST ranks 7th on our list of stocks that will benefit from AI. While we acknowledge the potential of VST as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.