Nvidia (NVDA -2.25%) It is the basis of the artificial intelligence (AI) boom. The company’s graphics processing units power virtually all cutting-edge AI systems, and the company also has a strong presence in adjacent markets such as AI networking equipment and software development tools.
But billionaire David Tepper sold Nvidia in the third quarter and bought a shocking AI stock: power company Vistra (VST -0.13%). It was a bad pun, but it’s a good case study for investors because Mr. Tepper’s hedge fund, Appaloosa, more than doubled the returns of the S&P 500. (^GSPC -0.00%) In the last 3 years.
Importantly, Tepper sold only 65,000 Nvidia shares during the quarter, reducing his position by just 9%. So it would be unfair to think that he has lost faith in semiconductor companies. But as of September 30th, Vistra accounted for 2.2% of his portfolio, compared to just 1.1% for Nvidia.
Additionally, the transactions described took place in the third quarter and closed more than two months ago. Investors should reevaluate Nvidia and Vistra before making a decision.
1. Nvidia
Nvidia’s investment thesis focuses on leadership in data center graphics processing units (GPUs). The company ships 98% of data center GPUs by volume, and these chips are the industry standard for accelerating workloads such as training machine learning models and running inference in artificial intelligence (AI) applications. It becomes.
Importantly, Nvidia is more than just a chipmaker. The company is an accelerated computing company that builds complete data center systems consisting of GPUs, CPUs, networking, and chip interconnects. The company also offers a set of software libraries and pre-trained models to streamline AI application development. This vertical integration strategy has made Nvidia “the world’s de facto AI enabler,” according to Susquehanna analyst Christopher Rowland.
Nvidia reported strong financial results for its fiscal third quarter of 2025, ending October 2024, exceeding consensus estimates for revenue and bottom line. Revenues increased 94% to $35 billion, and non-GAAP (generally accepted accounting principles) earnings increased 103% to $0.81 per diluted share, driven by strong demand for AI infrastructure. I did. The company expects sales to increase 70% (plus or minus 2 points) in the fourth quarter.
Going forward, Wall Street expects NVIDIA’s adjusted earnings to grow 52% annually through fiscal 2026 (ending in January 2026). As such, its current valuation of 53 times adjusted earnings looks very reasonable.
Investors should feel confident buying a small position in Nvidia today. Additionally, several analysts recommend buying the stock on a downside of a few percentage points. I think that’s a smart strategy.
2. Vistra
Vistra is the largest competitive power generation company in the United States, with approximately 41,000 megawatts (MW) of capacity across its portfolio of natural gas, coal, nuclear and solar power plants. Importantly, Vistra also became the second-largest nuclear power producer by capacity after acquiring Energy Harbor earlier this year.
Vistra operates in every major wholesale power market, but has a strong presence in ERCOT (Texas) and PJM (Northeast). According to Grid Strategies, data center power demand in these regions is expected to increase five times over the next five years. The driving force behind this demand is the growing adoption of artificial intelligence infrastructure.
More broadly, U.S. electricity demand is projected to grow at 2.4% annually through 2030, the fastest pace since the early 21st century, and AI data centers are just one reason for that trend. The return of manufacturing activity and the electrification of the Permian Basin in West Texas are major contributors to the projected load increase.
Vistra reported encouraging financial results in the third quarter. Revenues increased 53% to $6.2 billion, and GAAP earnings increased 320% to $5.25 per diluted share. Management cited industrial and manufacturing activity as a key driver of strong growth. The company also raised its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for 2024 and 2025, and launched an optimistic outlook for 2026.
Wall Street expects Vistra’s profits to rise 24% annually through 2025. Based on this consensus estimate, the current valuation of 26.5 times earnings looks reasonable. Investors looking to get more exposure to the AI boom, especially those outside the technology sector, should consider buying a few shares now. In fact, JPMorgan Chase recently named Vistra a 2025 “Top Pick.”
JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine holds a position at Nvidia. The Motley Fool has positions in and recommends JPMorgan Chase & Co. and Nvidia. The Motley Fool has a disclosure policy.
