Investors have been turning beyond the chip sector as a way to play the AI and data-center booms.
Investors have found another major way to play the artificial-intelligence trend besides semiconductor stocks, and that's led to a changing of the guard atop this year's list of the best S&P 500 performers.
Vistra Energy Corp. shares overtook NVIDIA Corp shares last week to become the top performer in the S&P 500 on a year-to-date basis. That's an impressive feat for an electricity company that's hardly a household name.
Through Friday's close, shares of Vistra were up 180% on the year, while shares of Nvidia were up 134%. Shares of Constellation Energy Corp, another play on nuclear power, ranked third with a 118% year-to-date gain.
What's fueling the big moves in Vistra and Constellation shares lately? Investors are upbeat about their nuclear-power businesses in the artificial-intelligence era. In general, Wall Street is paying more attention to the vast power requirements of data centers and the ways that technology companies could increasingly turn to clean energy as a means of solving their power needs.
That was on full display Friday, when Constellation announced that it signed a 20-year power-purchase agreement with Microsoft Corp. Through the arrangement, Constellation plans to restart a nuclear reactor at Third Mile Island, though not the reactor that partly melted down in a 1979 accident.
Jefferies analyst Paul Zimbardo wrote that the deal between Constellation and Microsoft "has very positive sector ramifications, confirming the data-center thesis and broadening the range of opportunities for nukes."
At the same time, he noted that the deal has some unique characteristics, including what Microsoft is likely to pay for power. "It remains to be seen but there are not many that can afford that price point in scale," he said in a note to clients.
Guggenheim's Shahriar Pourreza added that "the hyperscaler demand for clean megawatts is real." And Mizuho's Maheep Mandloi said the arrangement "points to the need for 24×7 clean energy to meet data center needs."
Meanwhile, Jefferies launched coverage of Vistra shares earlier in the month, saying that "contracting nuclear capacity to data centers could yield substantial upside," even though he said it was still complicated to determine the true magnitude of the potential upside.
Additionally, Jefferies made the case that the company isn't just a data-center play. Vistra stands to benefit from "the general increase in power and capacity prices, higher plant utilization, as well as potential above-market contracts with data centers," Jefferies analyst Julien Dumoulin-Smith wrote at the time.
The strong rally in Vistra shares so far this year could deny Nvidia shares a back-to-back stint as the S&P 500's top annual performer, though there's still plenty of market action left in the year. Nvidia shares finished as the biggest gainer in the S&P 500 for 2023. Dating back to 1999, only Advanced Micro Devices's stock held that title in back-to-back years.
Here's a list of the 10 best-performing stocks in the S&P 500 so far this year, through Friday's close: