Meet the best-performing stocks in the entire S&P 500 this year — No, it’s not Nvidia

The S&P 500 (SNPINDEX: ^GSPC) is up 21.5% in 2024 year to date, more than double the average annual return since its inception in 1957. But some stocks in the index are performing even better, especially those participating in the artificial intelligence revolution (AI).

Nvidia (NASDAQ: NVDA) the stock, for example, is up 145% this year. It is struggling to keep up with demand for its data center chips, which are used to develop AI, and that is causing the company’s revenue and earnings to rise.

But there’s one stock in the S&P 500 that’s crushing even Nvidia right now. Actions of Vistra (NYSE: VST) are up 205% year to date in 2024 — an almost unheard-of single-year performance for a company operating in the utilities industry. But it’s largely thanks to the AI ​​boom, and here’s why.

Nvidia was the best-performing S&P 500 stock in 2023

Nvidia stock ended 2023 with a 239% gain, making it the best performer in the entire S&P 500 for the year. It has benefited from a big wave of spending from the world’s biggest data center operators, including Microsoft, Amazon, Alphabet, Oracleand what’s more, all of these continue to fight for AI supremacy.

Developing the biggest AI models — and therefore the smartest AI applications — requires significant computing power, and Nvidia’s H100 graphics processing unit (GPU) was the most powerful chip in the industry last year. The data center companies above continue to buy the H100, but are looking forward to a new generation of GPUs based on Nvidia’s Blackwell architecture.

Blackwell-based GPU systems such as the GB200 NVL72 are set to deliver up to a 30x performance boost over the H100, and Nvidia CEO Jensen Huang expects them to generate billions in revenue. dollars for his company when they start shipping at scale. the last quarter of fiscal year 2025 (which will run from November to January).

Nvidia is on track to generate total revenue of $125.5 billion in fiscal 2025, which would be a 125% increase from the previous year. But data center spending is still on the rise, and Huang believes operators will allocate $1 trillion to building new infrastructure over the next five years.

All these data centers will generate an increase in electricity demand and this is where Vistra comes in.

Vistra is an unlikely beneficiary of the AI ​​revolution

Conformable Goldman Sachsa typical ChatGPT query consumes 10 times more electricity than a Google search. This is part of the reason why AI data centers could account for 4% of total global energy consumption by 2030, potentially doubling from 2% today.

The story continues

Vistra is an electric power company based in Texas. It has a generation business that produces electricity through its portfolio of coal, natural gas, solar and nuclear facilities. It also has a retail arm that distributes electricity to more than 5 million residential, commercial and industrial customers in 16 US states.

Clean energy sources such as nuclear, solar and natural gas are popular among climate-conscious technology companies. Microsoft, for example, wants to be carbon negative, water positive and zero waste across its entire organization by 2030, and appears to be on track to achieve these goals.

In the second quarter of 2024, Vistra announced that it had signed two long-term renewable energy purchase agreements, one with Microsoft and the other with Amazon. The company will build two large-scale solar facilities to fulfill these offers, but further details are not yet available.

Here’s something new do i know Microsoft recently signed a 20-year deal for nuclear power with Constellation Energyand will pay about $100 per megawatt-hour — double current rate today. In other words, Microsoft anticipates that power supplies will become so tight due to demand from AI data centers that it is willing to pay a premium to secure its needs for the future.

Vistra Could End 2024 Atop S&P 500, But Investors Should Be Cautious

As I pointed out above, there are very good reasons for the strong bull run in Vistra shares this year. However, based on the company’s trailing 12-month earnings per share (EPS) of $1.35, its stock is trading at a price-to-earnings (P/E) ratio of 86.1.

This could pose a problem, as the average P/E ratio for S&P 500 utilities stocks is around 18.3, so Vistra is quite expensive from that perspective.

According to Wall Street consensus estimates, Vistra could deliver $4.65 in full-year 2024 EPS, suggesting the upcoming third and fourth quarters will be much stronger than the year-ago periods. However, this still puts Vistra stock at a forward P/E ratio of 25.3.

Even if you calculate Vistra’s P/E ratio based on forecast 2025 EPS of $6.40, it still comes out to 18.3. In other words, the stock could be fully valued over the next year if Wall Street’s projections are correct (and if the rest of the utilities sector maintains its current P/E ratio).

Additionally, many top analysts see limited upside for the stock here. Morgan Stanley recently raised its price target to $132, which represents just a 12% potential return from where Vistra is trading today. Analyst firm Jefferies it has a slightly higher target of $137, indicating a 16% upside.

Vistra could deliver the best gain in the entire S&P 500 this year, but it likely won’t be lights out again in 2025 based on its current valuation.

Should you invest $1,000 in Vistra right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, Goldman Sachs Group, Microsoft, Nvidia and Oracle. The Motley Fool has a disclosure policy.

Meet the best-performing stocks in the entire S&P 500 this year — No, it’s not Nvidia was originally published by The Motley Fool