OpenAI's latest model is a leap forward, but this and future iterations require enormous power and energy.
Companies like Cheniere Energy, Vistra and Constellation Energy Corp. stand to gain from AI demand.
Stock shares of these three companies have risen between 38.8% and 99.7% in the past six months.
Last month, OpenAI unveiled its latest model, o3, which exceeded even their own expectations. By one benchmark—the Abstraction and Reasoning Corpus for Artificial General Intelligence (ARC-AGI)—OpenAI claims to have achieved AGI (Artificial General Intelligence), though some researchers remain skeptical about whether this milestone has truly been reached.
Regardless, o3 represents another monumental leap forward in the AI revolution. Yet, this progress comes with a significant challenge—or, for some, an exciting opportunity. The new model, along with future iterations, demands unprecedented levels of computational power and energy. With trillions of parameters and enhanced multitasking capabilities, the compute requirements are staggering. While specific estimates for o3's energy needs are not available, some projections suggest that the next generation of AI models will require significantly more power.
Meeting this enormous demand will necessitate vast new energy sources, positioning companies like Cheniere Energy (LNG), Vistra (VST), and Constellation Energy Corporation (CEG) as key beneficiaries. These stocks, supported by either top Zacks Ranks or strong growth forecasts and impressive momentum, are well-positioned to capitalize on the AI-driven surge in power requirements.
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Cheniere Energy: A Key Player in Powering AI
Natural gas has emerged as a critical energy source to meet the immense power demands of AI technologies. While nuclear energy holds long-term potential, natural gas is a readily available and scalable solution for the immediate future. The sector is also poised to benefit from favorable political winds, with the incoming administration showing strong support for natural gas development. This could pave the way for easier drilling approvals and expanded export opportunities, bolstering the industry's growth prospects.
Cheniere Energy, a leading player in natural gas liquefaction and export, has been gaining significant traction. Its stock has surged over the past month as investors increasingly recognize the massive opportunities tied to growing energy demand from AI applications and global markets. Despite its recent rally, LNG remains attractively valued, trading at just 21x forward earnings, leaving room for further upside.
Moreover, Cheniere is supported by strong fundamentals, highlighted by its Zacks Rank #2 (Buy) rating. This reflects positive earnings momentum, with current-year estimates up 12.43% and next-year estimates increasing by 5.6%. As AI continues to drive energy demand, Cheniere Energy stands out as a compelling investment opportunity.
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Vistra: A Leading AI Energy Stock
Vistra, one of the nation’s premier energy providers, is uniquely positioned to meet the escalating power demands of AI. As the second largest operator of nuclear power plants in the US, Vistra combines a broad portfolio of traditional and renewable energy assets to provide reliable, sustainable energy solutions. With a total generation capacity of approximately 41,000 megawatts—enough to power 20 million homes—Vistra plays a vital role in addressing the energy-intensive requirements of AI-driven technologies and data centers.
Vistra's stock has been a standout performer, surging an extraordinary 264% in 2024, making it one of the top-performing stocks in the S&P 500. While it currently holds a Zacks Rank #3 (Hold), the company spent most of the past year at the top of the Zacks Rank #1 list, driven by consistently rising earnings estimates. This reflects the market's recognition of Vistra's strategic position in the energy sector and its potential to benefit from the ongoing AI revolution.
Despite its remarkable price appreciation, Vistra remains reasonably valued with a forward earnings multiple of 28.1x, which is reasonable given its growth prospects. The company is projected to achieve annualized earnings growth of 17.4% over the next three to five years..
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Constellation Energy Corporation: Securing Leadership in AI Power
Constellation Energy Corporation is exceptionally well-positioned to meet the surging power demands driven by the AI revolution. As the nation’s leading nuclear energy provider, the company has also strengthened its position further with its recent acquisition, making it a top-tier natural gas provider as well.
Last week, Constellation cemented its leadership with a game-changing $16.4 billion acquisition of Calpine, a leading power generator specializing in natural gas and geothermal energy. Including assumed debt, the deal is valued at $26.6 billion and marks a significant milestone for the company. The acquisition not only diversifies Constellation’s energy portfolio—blending nuclear, natural gas, and geothermal power—but also expands its geographic reach into key energy-intensive markets like Texas and California. These regions are critical hubs for data centers and AI applications, making the move a strategic masterstroke.
Constellation’s stock has reflected this momentum, rallying more than 150% over the past year. Following the acquisition news, shares surged to new record highs, underscoring the market's confidence in the company’s ability to capitalize on AI-driven energy demand. With a Zacks Rank #2 (Buy) rating and a strengthened portfolio, Constellation is poised to play a pivotal role in powering the AI revolution while maintaining a balance between reliability and sustainability.
In the context of the AI boom, Constellation’s strategic moves place it among the elite players equipped to support the industry’s rapid growth. Alongside Vistra and Cheniere Energy, Constellation is a key contender for investors looking to gain exposure to the energy sector’s vital role in enabling AI’s transformative potential.
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Should Investors Buy Shares in CEG, LNG and VST?
The transformative growth of AI hinges on energy providers capable of meeting its immense power demands, and Constellation Energy, Cheniere Energy, and Vistra are at the forefront. These stocks not only align with the surging energy needs of AI but also represent compelling standalone investment opportunities with strong growth potential. For investors seeking exposure to the energy sector’s role in powering AI’s future, these companies are worth close consideration.
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