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Shares in retail electricity and power generation company Vistra (NYSE: VST) declined by 20.5% in February, according to data provided by S&P Global Market Intelligence. A decline of that magnitude is never welcome. Still, long-term investors in Vistra won't be too upset as the stock is up 464% over the last three years and 123% over the last year, including the decline in February.
Vistra, AI, and nuclear power
The stock price fall coincides with a decline in other power-related companies deemed to be plays on artificial intelligence (AI), such as Constellation Energy (down 16.5% over the same period) and NuScale Power (down 27.9%).
Vistra has become one of the favored plays on the theme thanks to its growing capacity in nuclear power. The company started 2024 with 2,400 megawatts (MW) of its 36,702 MW of total net generating capacity in nuclear and ended the year with 6,448 MW of its total 40,657 MW in nuclear.
The significant increase in nuclear capability came down to its acquisition of Energy Harbor in March. Investors have warmed to nuclear energy as the major cloud service providers, Microsoft (Azure), Alphabet (Google Cloud), and Amazon (Amazon Web Services), all inked deals to procure power from nuclear sources to power their data centers.
Why was Vistra stock sold off in February?
As such, Vistra's price movement needs to be put into the context of a sell-off by investors looking to take profit after a strong run-up in stocks exposed to the theme. The catalyst for the sell-off was the news, in late January, of Chinese start-up DeepSeek's launch of its latest artificial intelligence model.
The market fears that DeepSeek's model may cost a fraction of U.S. models, leading to less demand for power to run data centers than previously anticipated. Valuations for growth stocks often rely on long-term growth assumptions, so all it will take is a slight tweak in long-term growth estimates to significantly lower estimated valuations and price targets.
Is the sell-off justified?
The DeepSeek news is not necessarily bad. If AI adoption increases, then it's likely to be a net positive as it will accelerate the growth of AI demand overall. Moreover, Vistra hasn't announced a major deal with a cloud service provider yet, so there's still plenty of upside potential from a deal in the future, particularly if that deal is done with power priced above the current market rate.
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