Nvidia has been a major player in the AI boom, but the stock has outperformed it this year.
Stanley Druckenmiller is one of the greatest investors of all time. As a manager at Duquesne Capital Management from 1981 to 2010, Mr. Druckenmiller generated an average annual return of 30%, with no loss-making years during that time. Although Druckenmiller is no longer active as a fund manager these days, he still manages his own portfolio of stocks through the Duquesne Family Office. And investors are paying close attention to his moves.
That’s why investors paid attention to Druckenmiller’s early purchase of Nvidia stock. (NVDA 0.78%) It exited most of its stake in the AI chip leader in the first half of this year, in Q4 2022 following the launch of ChatGPT. At the time, he said the market now sees in NVIDIA what he previously perceived. In an interview with Bloomberg last week, Duquesne State’s top executive said he had sold all of his shares in Nvidia.
Since then, Nvidia’s stock price has continued to rise, prompting Druckmiller to admit that selling his chip stock was a mistake. He also said he remains bullish on artificial intelligence (AI), saying, “We’re big believers in AI over the long term, and we believe in AI for the long term, especially with the infrastructure built to support the power needs.” There are still many ways to take advantage of it,” he added. . ”
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AI stocks that Druckenmiller is buying
Mr. Druckenmiller sold all 9.5 million shares of Nvidia he once owned, but has been buying up shares in another, less prominent AI stock. That’s Vistra (VST 3.06%)with $225.7 million at the end of the second quarter, making it Duquesne’s third-largest holding by market capitalization.
Druckenmiller first purchased the stock in the third quarter of 2023, and began selling Nvidia shares in the same quarter. Since the end of the quarter, the company’s stock has risen 309%, and its recent surge has made it the best-performing stock in the S&P 500 this year, overtaking Nvidia. Vistra is up 252% since the beginning of the year.
Should you follow Druckenmiller to Vistra? Let’s take a look at what this unique AI play has to offer.
What is Vistra?
As Druckenmiller alluded to in the quote above about AI infrastructure, energy will play a major role in AI, as running AI data centers requires incredible amounts of power. . That’s where Vistra comes into play. The Texas-based company is currently the nation’s largest competitive (meaning deregulated) power generator, with 41,000 megawatts (MW) of generation capacity.
It is also one of the country’s largest producers of nuclear energy, with a capacity of 6,400 MW. With the acquisition of Energy Harbor earlier this year, the company now has 1,020 MW of energy storage capacity, the second largest in the country.
The reason investors are increasingly seeing Vistra as toying with the AI boom is that power demand from data centers will nearly triple from 2023 to 2030, with power demand increasing by 35 gigawatts during that time. This is because it is expected. Vistra also cited a number of other growth drivers, including a return to industrial activity, the construction of new semiconductor foundries under the CHIPS Act, and increased electrification needs, including in the Permian Basin, where demand is expected to surge by 20 gigawatts by 2030. We are anticipating it.
This growth explains why investors believe utility stocks like Vistra are an attractive way to gain exposure to AI growth.
Should you buy Vistra?
Because Vistra is a utility company, it is still subject to most of the utility constraints. However, it does have one advantage over other power companies. It operates in an unregulated electricity market, delivering electricity at market prices rather than at prices determined by regulators. Most power companies operate this way because they are regulated monopolies.
This gives the business significant upside potential in the event of supply shortages caused by growth in AI and data centers.
Despite this growth opportunity, Vistra’s stock price is actually higher than Nvidia’s at the moment, trading at a price-to-earnings ratio of 100, but analysts expect earnings to increase through 2025. . However, energy prices are notoriously difficult to predict.
Alphabet and Amazon’s announcements this week helped boost nuclear stocks. These are signs that leading technology companies are working to ensure they have the right sources of clean power for their data center needs.
Vistra could fit into your AI portfolio. However, given the recent surge, I think it makes more sense to wait for the stock price to rise before buying the stock.
Druckenmiller seems to agree with that opinion. After buying stocks for three consecutive quarters, he took a break in the second quarter, perhaps thinking the price had already risen significantly.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Jeremy Bowman has a position at Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.
