Is Vistra Stock a Buy Now?

If you believe artificial intelligence will take up a growing share of energy, Vistra might just be the stock for you.

Electricity demand in the U.S. is rising rapidly, primarily driven by data centers and the explosive growth in artificial intelligence. Vistra (VST -4.58%) is one energy company that could benefit from this surge in demand.

Vistra raised its outlook, and analysts are turning positive on the stock, but is it a buy today? Let's jump into the business and the investment opportunity it presents.

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Vistra's power advantage

Vistra serves 5 million residential, commercial, and industrial retail customers, providing them with much-needed electricity. Based in Irving, Texas, Vistra operates a fleet of approximately 41,000 MW of generating capacity, positioning it as the largest competitive power generator in the U.S. It provides power services across 18 states and Washington, D.C., giving it a foothold in all of the major competitive wholesale power markets in the country.

The company generates electricity from a diverse portfolio of sources, including:

Natural gas: 59% of capacity
Nuclear: 16% of capacity and the second-largest nuclear power fleet in the U.S.
Coal: 21% of capacity
Renewables and battery storage: 4% of capacity

Vistra primarily sells power through retail contracts and wholesale markets. In its retail segment, it sells electricity and natural gas to end-use customers, primarily through brands like TXU Energy, Energy Harbor, and Ambit.

In its wholesale segment, it sells power, capacity, and ancillary services into all major competitive wholesale markets in the U.S. These markets are managed by Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs), which manage the flow of power to their respective grids.

The majority of its generation facilities operate as merchant facilities selling into the spot market or short-term markets. This means that Vistra's profits depend heavily on supply and demand in these regional markets. When prices rise, it can make more money, but when prices fall, earnings will follow.

Data centers could provide a tailwind to energy demand

Vistra expects load demand to continue growing across its primary markets. One key driver of this growth is the emergence of large data centers that power transformative technologies like artificial intelligence (AI). Numerous hyperscalers have affirmed or increased their capital expenditure levels, providing some visibility into future demand.

Energy demand is also picking up thanks to the electrification of oil field operations (especially in the Permian Basin of West Texas) and growth in onshore manufacturing. Management believes load growth will compound annually in a low-to-mid single-digit range through 2030 across its markets, and is expanding its capacity to meet growing demand.

The company has secured 20-year license renewals for all six reactors in its fleet, including the recent approval for the Perry Nuclear Power Plant to operate through 2046. It has also started construction on projects supporting contracts with Amazon and Microsoft, with expected commercial operation dates in 2025 and 2026, respectively.

Investors should be mindful of this risk

Vistra is vulnerable to market fluctuations because it primarily operates as a merchant power provider, making its revenues and operating cash flows significantly affected by volatile prices for wholesale electricity, natural gas, and other fuels.

For example, changes in natural gas prices affect operating margins on Vistra's nuclear and coal facilities, as electricity prices generally track natural gas prices. Additionally, if electricity demand does not grow as expected, perhaps due to more energy-efficient AI or slower adoption of AI, its performance could suffer.