3. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders: 92
Vistra Corp. (NYSE:VST) is a prominent independent power producer company that uses 400+ AI models to optimize operations, improve customer service, analyze energy usage data, predict demand, and optimize grid management.
It operates as an integrated retail electricity and power generation company and delivers essential energy resources to households, businesses, and communities. The surge in AI data center demand has promoted this company’s growth. It is also the largest independent power producer (IPP) in Texas, well-positioned to serve the state’s growing data center market.
In March, the company acquired Energy Harbor for $3.43 billion, a nuclear power and retail energy business. This deal added around 4,000 MW of nuclear capacity and 1 million retail customers to the company portfolio, making it the owner of the second-largest competitive nuclear fleet in the US.
The Nuclear Regulatory Commission approved Vistra Corp.’s (NYSE:VST) request to extend the operation of its Comanche Peak Nuclear Power Plant through 2053, an additional 20 years beyond the original license, continuing reliable generation of zero-carbon electricity from this 2,400-MW facility.
In the US, which houses a significant share of these data centers, electricity use is forecasted to increase from 200 TWh in 2022 to 260 TWh by 2026. This is a 6% surge in the nation’s total power consumption.
According to the International Energy Agency (IEA), data centers that used 460 terawatt-hours (TWh) of electricity in 2022 are expected to see their energy needs double to over 1,000 TWh by 2026. The total energy share of data centers is expected to increase by 3%-10% in the coming years.
Its AI-powered Heat Rate Optimizer (HRO) is deployed across 67 power-generation units and has achieved an average 1% improvement in efficiency, resulting in annual cost savings of over $23 million. This technology helped reduce carbon emissions, contributing to the goal of achieving a 60% reduction by 2030 and net-zero emissions by 2050.
In the second quarter of 2024, the company saw an overall 20.57% year-over-year improvement in revenue. The company is well-positioned to capitalize on the growing power demand. 92 hedge funds are long in the company as of June 30, and the largest stake is valued at $587,931,842 by Lone Pine Capital.
Legacy Ridge Capital stated the following regarding Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We’ve written consistently about NRG and Vistra Corp. (NYSE:VST) since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable. In the 2019 letter, with respect to VST, we wrote:
“Over the next decade management should have close to $15 Billion to deploy to share repurchases. If you assume they have to pay an average price for the stock that’s higher than the current one, and they can only repurchase 60% of shares outstanding instead of the 100% the math implies, FCF per share in 2030 would be $14. That’s a $70 stock at today’s valuation, but a $140 stock at a more reasonable FCF yield of 10%.” And… “The IPPs are un-investable for most money managers, so there we are. When they become investable we’ll probably be long gone.”
We’re not exactly long gone, but sentiment has certainly surpassed investable. After 5+ years of VST trading between $17 – $26 a share—and $26 exactly a year ago—it hit a high of $107 in May on the heels of the Artificial Intelligence (AI) narrative and the implications for electricity demand. While we agree with the prevailing consensus view that more Data Centers will be built, Data Centers require base load energy, and that the US will probably be short base load energy, predicting the rate of any technological advancement is not our area of expertise, and we feel the margin of safety has dissipated. Therefore, what had been our largest position entering 2023 and 2024, and has been our greatest contributor to performance, is now one of the smaller positions in the fund.”
