(Bloomberg) -- Vistra Corp. just pulled off a feat that no other utility stock has managed since 2001 — it topped the leaderboard of the S&P 500 Index with an eye-popping 264% annual gain.
Shares of Vistra, which joined the S&P 500 in May, posted their best year in the Dallas-based firm’s history and led a pack of nuclear power plant operators higher in a performance more akin to the high-growth tech sector than the typically boring and defensive play of utilities.
Long considered one of the sleepier corners of the market, utilities advanced as the growth of artificial intelligence and data centers fueled demand for power. And growing acceptance of nuclear power as an emissions-free energy source provided a further boost.
“Everywhere you look, power demand has never been this strong,” said Shahriar Pourreza, an analyst with Guggenheim Securities. “There’s a finite number of these power plant operators and they have a scarcity value.”
Independent power plant operators — unlike regulated utilities — have seen a “tipping point” amid the rise of data centers, a huge re-shoring effort and electrification trends, Pourreza said.
The combination of increased demand and greater acceptance of nuclear power propelled Vistra’s stock to even outperform AI darling Nvidia Corp.’s 178% gain. The one stock with a claim on Vistra’s position on the S&P 500’s leaderboard is Palantir Technologies Inc., whose 350% gain comes with the caveat that it was only added to the S&P 500 in September.
The four best-performing S&P 500 utility stocks this year are all independent power producers — known as IPPs — that own nuclear generating facilities. After Vistra, those stocks are Constellation Energy, which has climbed 94%, followed by NRG Energy Inc., up 78%, and Entergy Corp., up 50%.
In September, Microsoft Corp. made a deal with Constellation to buy power from the Three Mile Island nuclear generating facility, immediately sending shares in the group higher. Similar deals signed by Amazon.com Inc. and expectations for more power purchases by tech giants have continued to propel the stocks higher.
The last utility name to outperform every other stock in the S&P 500 was AES Corp. in 2001, when defensive stocks were in demand after the dot-com collapse pushed the market down for a second year. A handful of companies adjacent to the power industry — like Enphase Energy — managed the feat in recent years, but none of them have been from the utility sector.
However, this year’s sharp rally also brings potential volatility that utility investors normally shy away from.
“We believe the opposite is likely to be true as well — IPPs are more vulnerable to downside if the rosy AI outlook doesn’t pan out,” said Nikki Hsu, Bloomberg Intelligence analyst.
Indeed, there are a few lonely bearish analysts on Vistra and on independent power producers more broadly.
“The market is too optimistic about Vistra’s long-term upside from energy demand growth,” Morningstar analyst Travis Miller wrote in a Dec. 4 note, adding that the shares are trading around three times higher than his $52 fair-value estimate. Miller has the lowest price target for the stock on the Street and has the only sell-equivalent rating on the stock, according to data compiled by Bloomberg.
Still, forward price estimates of other sell-side analysts suggest the rally may have more room to run. Wall Street analysts covering the stock on average expect the shares to rally 16% over the next 12 months, which would then mark its fifth-straight year of gains.
“I think we’re probably in the second or third inning of this rally that we’re seeing in this space,” Pourreza said, adding that Vistra is his top pick for 2025.
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