Texas Power Firm Set for Worst Week in Two Years as AI Bets Fade

Shares of power producer Vistra Corp. are on track for their worst week since 2022 as traders backpedaled on bets for an AI-fueled surge in electricity demand.

The Texas-based firm’s shares rose more than 2% Friday while remaining on track for an 10% drop this week. The pullback follows a rally that saw the stock more than quadruple in a year — beating even AI-pioneer Nvidia Corp.’s surge — as the energy company earned the praise of billionaire hedge fund founder Daniel Loeb.

The profit-taking comes after investors piled into companies feeding the energy needs of data centers in a wager that the AI boom will devour increasing amounts of electricity. The last week has seen a broad retreat, with shares of fellow power producer Constellation Energy Corp. and companies that manufacture electricity equipment also dropping.

It takes years for power use to ramp up and for new generation projects to come online, Bloomberg Intelligence analyst Nikki Hsu said. Some holders, left to sift through earnings reports and try to read the tea leaves for clues about tech companies’ future expansion plans, may be getting impatient, she said.

“Investors are probably taking a step back,” Hsu said.

Vistra’s rally was fueled by the company’s position as one of the few publicly traded independent power producers, a status that means it sells electricity at market prices, unlike regulated utilities. It’s also a major owner of nuclear generation capacity and a big player in the red-hot Texas power market.

Shares started tumbling last Friday as the company outlined plans to add natural gas capacity in the state.

Morningstar analyst Travis Miller said strong interest in a Texas loan program, designed to fund new power generation capacity, may have fueled investors’ retreat on Vistra. If the Texas legislature expands the fund, it could lead to a “flood” of generation capacity that weighs on power prices, he said.

Still, Wall Street remains bullish on Vistra, with 10 of 11 analysts surveyed by Bloomberg rating the shares a buy. The average price target of $109 suggests a nearly 25% climb over the next 12 months.

Even Miller, who holds the lone sell, still sees a boom in demand on the way, pointing to Microsoft’s plan to build a $1 billion data center in Indiana. The real threat, he said, is from a long-term increase in electricity supply.

“I don’t think there’s any sign that demand for AI computing and related energy consumption is going to slow,” he added.