Vistra: A Hidden AI Achieving Rapid Growth: TIPRANKS

Bistra VST +1.05% ▲The company completed the acquisition of the nuclear power plant management company Energy Harbor based in Ohio on March 1, and it became an investors' favorite “hidden AI” brand. Stock prices have surged more than 161% over the past 12 months, and there is still room for realistic growth.

Due to the synergy effects of the energy harbor acquisition, Bistra will continue to be one of the largest independent power generation companies and retail electricity operators in the United States. The company has a diverse asset portfolio, such as nuclear power, solar power, coal, natural gas, and battery storage facilities.

What makes me bullish on Bistra is due to its diverse asset portfolio centered on nuclear power, ingenuity in capital allocation, and the fact that the company has not yet taken advantage of favorable electricity demand trends due to artificial intelligence and data centers.

Bistras have demonstrated excellent capital allocation skills in the past. In 2017, when renewable energy began to rise in the highly competitive Texas Electricity Reliability Council (ERCOT) market, Bistra shut down several unprofitable coal plants. These power plants were facing difficulties due to an oversupply of renewable energy and a drop in wholesale electricity prices.

I have confidence in the management team's ability to allocate capital to promote future growth by stopping unprofitable projects as in the example described above and turning surplus cash flow into capital returns. Since 2018/6/30, Bistra has carried out share buybacks in excess of 5 billion dollars. Also, by the first quarter of 2024, Bistra returned 4.6 billion dollars to investors, of which 3.9 billion dollars were due to share buybacks, and all were carried out under a large-scale capital return program of 7.75 billion dollars.

From 2024 to 2025, management plans to repurchase shares worth 2.25 billion dollars. The company's balance sheet remains strong, with $9.4 billion in assets and $8.7 billion in liabilities. As a result, there is no reason why the company is unable to achieve its share buyback target.

One cannot talk about the ingenuity of Bistra's capital allocation without investing 3.4 billion 30 million dollars to strategically enter the nuclear power market and acquire Energy Harbor, which operates the second-largest nuclear power plant in the United States. With this acquisition, Bistra added 4,000 megawatts of nuclear power capacity and 1 million customers to its retail power business.

Nuclear power has emerged as a powerful means of supplying low-carbon power 24 hours a day, 365 days a year, and hyperscaler companies, including Amazon AMZN +1.47% ▲ and Microsoft MSFT +1.64% ▲, have signed contracts with nuclear power companies to purchase electricity for data centers. One of the top drivers of power demand in data centers is generative artificial intelligence, which is a technology that consumes large amounts of electricity behind large-scale language models such as ChatGPT.

According to Goldman Sachs Research GS +1.49% ▲, ChatGPT queries consume 2.9 watt-hours of electricity, which is about 10 times the power consumed by Google searches (0.3 watt-hours). AI is expected to increase data center electricity demand by 160 percent by 2030. Currently, data centers account for about 1% to 2% of global electricity consumption, but it is expected to rise to 3% to 4% by the end of 2030.

Demand for electricity is expected to increase rapidly due to the rise of generative AI applications such as ChatGPT. Goldman Sachs Research predicts that AI-driven electricity consumption will increase by approximately 200 terawatt-hours per year from 2023 to 2030.

What do these things mean for companies based in Texas, the center of data centers? Bistra will sign long-term power purchase agreements related to data center power, such as those between Amazon and Talen Energy (TLN +4.21%) ▲ and Microsoft and Helion Energy (Helion Energy), with major high-tech companies.

At the beginning of July, Chief Executive Officer Jim Burke (CEO) responded to an exclusive interview on CNBC TV and commented that “large customers” requiring electricity for large-scale data centers were gathering at the bistra. There hasn't been an official announcement about the acquisition of the project yet, but I don't think it's that far away.

I think Bistra's stock price is at an attractive level. This is 14.8 times the expected profit for this year and is an 11.5% discount for the sector. The company has a diverse asset portfolio of natural gas and nuclear power, and is ideally positioned to utilize long-term power demand trends due to a wider range of electrification and data centers. If Bistra acquires a project from a major hyperscaler, there is a possibility that the company's stock price will rise until the month.