Data Centres, Energy Demand and Vistra

Data Centres, Energy Demand and Vistra Current Market Price: $140.02 | Market Capitalization: $ 47 B | GAAP EPS (TTM): $5.92 US Equities have seen a jump in stock prices across various segments of the Artificial Intelligence trade; most of them are still continuing their upward journey, but we feel that there are some cracks forming, and it won't be long before we see a slowdown in CapEx by these firms. Something which we haven’t seen yet is upward momentum in Energy companies; eventually you need power, a lot of power to run those data centres, right? All these data centres are power hungry, and you can’t feed them with fossil fuels and expect the environmental groups to not come after you. This is where the energy companies, specifically nuclear energy, come into play, which have been sitting quietly for at least a year now. According to research published by Goldman Sachs, US data centre power demand is forecast to more than double to 66 GW in 2027 from 31 GW in 2025, driven by an accelerating buildout of AI infrastructure and to increase to more than 90 GW by the end of 2027. Most of the data centre capacity additions are forecasted to be in Texas, followed by Virginia and Ohio. The share of US data centres in total peak summer power demand is projected to rise from 4.1% in 2025 to 5.3% in 2026 and 8.5% the following year Our View on Energy All those data centres are of no use if there is not enough energy produced to fulfil their demand. Producers like Vistra Corp and Constellation Energy have seen Power Purchase Agreements (PPAs) for up to 20 years with the likes of Amazon, Microsoft, Meta and others, but according to us this won’t be enough. With the rise in capacity addition in data centres, more energy will be demanded, much more than what these companies can fulfil at the moment. Moreover, the AI race is something that the US Govt is itself invested in; it will do everything in its power to remove all speedbreakers. Even in a high inflation phase when bond yields are skyrocketing, more debt can be issued to these power generators to augment their facilities. A company we will have our eyes on will be Vistra Corp (NYSE: VST) Vistra Corp (VST) Vistra is one of the largest competitive power generators in the U.S., with a capacity of approximately 44,000 megawatts, or enough to power 22 million homes, operating in all of the major competitive wholesale markets in the country. It currently holds the second-largest competitive nuclear capacity in the US, right after Constellation Energy. It currently trades at a Price to Earnings of 23.64x and a Forward Price to Earnings of 13.67x, which is far lower than its peers Vistra has 3.4 GW of its 6.4 GW of capacity contracted with Amazon and Meta under 20-year PPAs, which is way more than what its competitor, Constellation Energy, sits at. Though Constellation carries a larger energy fleet both in Nuclear and Overall, Vistra for us seems a better pick considering the valuation it trades at. Disclaimer: The above piece is research for educational purposes and does not in any way intend to give any financial advice. ThesisPoint Research is neither registered with the SEC nor with the SEBI.