Stanley Druckenmiller Shifts Focus: From Nvidia to Vistra in the AI Landscape

Stanley Druckenmiller is regarded as one of the most accomplished investors ever. Between 1981 and 2010, while managing Duquesne Capital Management, he achieved an impressive average annual return of 30% without experiencing a single losing year. Although he is no longer an active fund manager, Druckenmiller continues to manage his own stock portfolio through the Duquesne Family Office, making his investment decisions closely monitored by investors.

Druckenmiller’s Surprising Move on Nvidia

Recently, investors were interested to learn that Druckenmiller, who had invested early in Nvidia (NASDAQ: NVDA) after the launch of ChatGPT in Q4 2022, sold most of his holdings in the AI chip company during the first half of this year. At that time, he commented on how the market had begun to recognize Nvidia’s value, similar to what he had seen earlier. An interview last week with Bloomberg revealed Druckenmiller had completely exited his Nvidia position.

Reflecting on his decision, Druckenmiller acknowledged that selling Nvidia was a mistake, as its stock price has continued to rise since then. He emphasized his ongoing belief in artificial intelligence, stating, “We’re big long-term believers in AI, and there are still many ways we’re playing AI, particularly the infrastructure that’s been built to support the power needed.”

Image source: Getty Images.

The AI Opportunity in Vistra

While Druckenmiller has completely divested his 9.5 million shares of Nvidia, he is actively buying shares of another company: Vistra (NYSE: VST). As of the end of the second quarter, it was Duquesne’s third-largest holding, valued at $225.7 million. Druckenmiller began purchasing Vistra stock in Q3 2023—coinciding with his Nvidia sell-off—and since then, Vistra’s stock has surged 309%, becoming the best-performing stock in the S&P 500 for the year, surpassing Nvidia’s performance. Year to date, Vistra has risen by 252%.

A Closer Look at Vistra

Druckenmiller’s mention of AI infrastructure ties into the significant energy requirements of AI technology, particularly in powering data centers. Vistra, based in Texas, is now the largest competitive power generator in the U.S. with an installed capacity of 41,000 megawatts (MW). Additionally, it is among the leading producers of nuclear energy in the nation, boasting 6,400 MW capacity. This year, after acquiring Energy Harbor, Vistra also became the owner of the second-largest energy storage capacity in the country at 1,020 MW.

Investors increasingly view Vistra as a benefactor of the AI industry due to the projected tripling of power demand from data centers between 2023 and 2030, anticipating an additional demand of 35 gigawatts during that period. Vistra is also expected to gain from the reshoring of industrial activities, new semiconductor foundry constructions under the CHIPS Act, and an increase in electrification needs, particularly in the Permian Basin, where demand might grow by 20 gigawatts by 2030. This broader growth narrative positions utility firms like Vistra as valuable players in the expanding AI sector.

Assessing Vistra as a Potential Investment

As a utility company, Vistra faces the typical challenges that come with the industry. However, it enjoys a unique advantage by operating in deregulated power markets, enabling it to sell electricity at market-driven prices rather than regulated ones. This flexibility positions Vistra favorably if demand surges from the growth of AI and data centers.

Despite the promising outlook, Vistra currently trades at a price-to-earnings ratio of 100, making it more expensive than Nvidia. Analysts project profit growth through 2025, but predicting energy prices remains challenging.

Recent announcements by both Alphabet and Amazon have boosted nuclear stocks, as these tech giants seek to secure clean energy for their expansive data center operations.

Vistra may indeed serve as a strategic component in an AI-driven investment portfolio. However, given the recent price increase, it may be wise to wait for a more favorable buying opportunity. Druckenmiller’s pause in purchasing additional shares in the second quarter suggests he may share this cautious outlook after three consecutive quarters of buying.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.

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