Here’s why this stock is up 38.8% in September, becoming the S&P 500’s best performer in 2024

Shares in the commercial electricity and electricity generation company Vistra (VST 5.17%) rose 38.8% in September, according to data from S&P Global Market Intelligence. The move is somewhat unusual because much of it stems from an announcement at another company. Here’s the downside.

Vistra stock rises in sympathy

The Vistra peer I am referring to is Constellation Energywhose stock rose 32.2% in September. This was primarily due to Constellation announcing a 20-year power purchase agreement with Microsoft to power its data centers with power from Constellation’s Three Mile Island nuclear power plant.

According to a Reuters article, Microsoft may have agreed to pay up to $115 per megawatt-hour (MWh) as part of the deal. This figure is significant because, as previously discussed, it is well above the total realized price of 51.2 MWh that Vistra received in its most recent quarter.

To be clear, Vistra currently generates 41,000 megawatts (MW) of power from various sources, including 24,000 from natural gas. Still, the market got excited about its 6,400MW of nuclear power and that it recently acquired 4,000MW of that nuclear capacity by purchasing Energy Harbor in March.

In addition, Vistra announced in September that it would buy the remaining 15% of Vistra Vision that it does not own. Vistra Vision is Vistra’s subsidiary that houses its nuclear generation facilities, renewables and energy storage businesses. The acquisition will increase Vistra’s exposure to nuclear and clean energy-powered electricity.

What’s next for Vistra?

The most important cloud service providers, Amazon Web Services, Microsoft Azure and AlphabetGoogle Cloud must ensure access to long-term power to support growing demand from artificial intelligence (AI) applications. Microsoft is therefore believed to have agreed to a price significantly above current spot electricity prices with Constellation. Vistra investors hope their company can sign similar deals in the future.

Image source: Getty Images.

Looking at traditional metrics like price-to-earnings will make Vistra stock look expensive. However, it will only take a sizable deal or two in the long run, and Wall Street analysts will be scrambling to upgrade their models and forecasts of long-term earnings and cash flow.

The latter is key to the stock’s investment case, and if the AI ​​revolution turns into an evolution, it just might.