Data centers, manufacturing, and electric vehicles (EVs) will put greater strain on the electric grid in the coming decades, requiring massive investment in energy infrastructure. Vistra (VST +0.09%) is well positioned to meet this demand, with over 44 gigawatts of power-generating capacity across natural gas, nuclear, coal, renewables, and other sources.
Despite this opportunity, the stock trades at a reasonable forward price-to-earnings (P/E) multiple of 18. This could set up excellent returns in a growing-demand environment.
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Strong demand outlook
The growing demand for electricity provides a bullish setup for the stock. Vistra expects annual load growth to increase by 5% to 6% in the Texas power market and by 2% to 3% in the Mid-Atlantic and Midwest regions through 2030.
The company is capitalizing on the substantial increase in data center spending, driven by leading hyperscalers running advanced artificial intelligence (AI) workloads. It has signed long-term purchase agreements with Meta Platforms for over 2.6 gigawatts of nuclear power. It has a similar agreement with Amazon Web Services (AWS) and remains in talks with other large-load customers, pointing to additional demand ahead.
The company has also shown it can run efficiently even in difficult conditions. Despite volatile weather in the first quarter, it delivered a healthy Q1 adjusted operating profit of $1.5 billion, with full-year adjusted operating profit expected to be $6.8 billion to $7.6 billion.
Further growth in electricity demand could translate into meaningful earnings growth over the long term. For a broader market context, the International Energy Agency (IEA) expects data centers, EVs, and industrial activity to drive 3.5% annual growth in electricity demand through 2030.
Natural gas should remain one of the key sources supporting that demand, which plays to Vistra's strengths. Natural gas generation represents 62% of its capacity and should grow with its pending acquisition of Cogentrix, which would add about 5.5 gigawatts of natural gas generation assets.
NYSE: VST
Key Data Points
Risks and growth expectations
There are risks to watch, including bottlenecks in data center expansion and delays in grid connections. Shifting weather patterns, regulation, and power prices in Texas could also pressure Vistra's revenue growth.
Still, the stock's valuation already appears to reflect some of those risks. Although analysts forecast earnings to grow at a 37% annualized rate in the coming years, the stock trades at a modest forward PEG ratio (forward P/E divided by expected earnings growth) of about 0.5x.
Vistra's integrated model -- producing power and selling it directly to customers -- should support growing earnings over time. Its deals with leading hyperscalers suggest it's an under-the-radar way to benefit from the data center spending wave.
