Rapid growth in artificial intelligence is broadly expected to result in an up to 160% increase in data centres driven demand for electricity by the end of this decade.
Power stocks that are particularly well-positioned to benefit from such a massive increase include Constellation Energy, Vistra Corp, and Talen Energy, according to Guggenheim analyst Shahriar Pourreza.
All three of the stocks he mentioned in a recent note are already on track to closing this year on record levels. But Pourreza is convinced the rally is in its early phase only.
Constellation Energy Corp (NASDAQ: CEG)
Constellation Energy stock is currently up some 100% versus the start of 2024.
Still, Shahriar Pourreza sees further upside in Constellation Energy next year as he expects a massive surge in power demand as tech companies continue to scale up AI.
The company’s nuclear assets in particular could attract the artificial intelligence companies to sign similar deals with Constellation Energy as Microsoft did in September.
The related boost to financials could drive CEG stock price up to $328 in 2025, as per Guggenheim.
The investment firm like Constellation Energy for an additional 0.61% dividend yield as well.
Talen Energy Corp (NASDAQ: TLN)
Much like Constellation Energy, Talen also has a power deal in place with a tech titan – Amazon.com Inc – that contributed significantly to its 300% year-to-date gain.
Despite the exceptional rally, Guggenheim analyst is convinced that Talen Energy stock is not particularly expensive to own considering a significant expected increase in power demand in 2025.
He sees TLN as means to gain exposure to the AI market that is estimated to grow at a compound annualised rate of more than 28% through the end of this decade.
Shahriar Pourreza has a $246 price target on Talen shares that translates to about a 25% upside from current levels. Unlike CEG, however, Talen Energy does not currently pay a dividend.
Vistra Corp (NYSE: VST)
Among power stocks that Guggenheim recommends owning for 2025, Vistra Corp has rallied the most this year.
In fact, it’s the 2024’s best-performing S&P 500 company.
Shares of the Texas based company have more than tripled in the trailing 12 months but is still cheaper than Constellation Energy at writing.
Shahriar Pourreza is convinced that the company’s nuclear as well as gas assets are attractive to AI companies.
“I like Vistra because I don’t have to bet whether the next deal is going to be a nuclear plant or it’s going to be a gas plant.”
He went on to call Vistra stock his top pick for 2025 in his report.
Pourreza’s $177 price target indicates potential for another 26% upside in VST from current levels.
Vista pay an added dividend yield of 0.61% as well.
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