Interest in artificial intelligence (AI) exploded following the launch of ChatGPT in late 2022. Nvidia has been one of the biggest winners in terms of revenue growth and share price appreciation. But while Wall Street still expects the stock to move higher over the next year, analysts forecast more upside in Amazon (NASDAQ: AMZN) and Vistra (NYSE: VST).
I think Nvidia is a must-own stock for investors hoping to capitalize on the AI boom. But owning a basket of AI stocks is the most prudent strategy, so Amazon and Vistra certainly warrant consideration.
The investment thesis for Amazon centers on its strong competitive presence in three markets. Specifically, the company operates the largest online marketplace in North America and Western Europe in terms of sales. Amazon is also the third-largest digital advertising company. And Amazon Web Services (AWS) is the largest public cloud.
Amazon is using artificial intelligence across its retail business to automate coding and supply chain management and surface product recommendations for shoppers. Morgan Stanley analysts believe the resultant cost savings could boost the company’s operating margin by several percentage points. But the company is particularly well positioned to monetize AI due to its leadership in cloud infrastructure and platform services (CIPS).
With that in mind, Wall Street expects Amazon’s earnings to increase 25% over the next 12 months. That consensus estimate makes the current valuation of 45 times earnings look reasonable. Indeed, of the 67 analysts who follow Amazon, 63 currently rate the stock a buy. Investors should feel comfortable buying a small position in this AI stock today.
The investment thesis for Vistra is straightforward. Businesses are spending heavily on AI infrastructure, but AI systems require tremendous computing power, which itself requires a tremendous amount of energy. Many experts see nuclear energy as the answer because it’s nearly carbon-free and it’s more reliable than renewable sources like wind and solar. Vistra has the second-largest nuclear power fleet in the U.S.
Vistra is a utilities company that integrates power generation across gas, coal, nuclear, and renewable facilities with retail electricity sales to residential, commercial, and industrial customers in 16 states and the District of Columbia. With an installed capacity of 41 gigawatts (GWs), Vistra ranks as the largest power generator in the U.S. The company is also the largest residential retail electricity provider in the country.
Importantly, Vistra recently completed long-term power purchase agreements with two hyperscale cloud companies at the heart of the AI boom. The first entails constructing a 200 megawatt solar facility backed by Amazon, and the second entails constructing a 405 megawatt solar facility backed by Microsoft. Investors are hoping nuclear deals are next for Vistra, much like the recent agreement between Microsoft and Constellation Energy.
Notably, management expects the artificial intelligence boom to boost data center power demand by 35 GW between 2023 and 2030, but that is by no means Vistra’s only growth driver. For instance, population growth in West Texas could boost power demand by 20 GW by the end of the decade, and the company sees a potential opportunity in the reshoring of industrial activity.
Wall Street expects Vistra’s earnings to increase about 250% over the next 12 months. That figure reflects increased data center power demand, and an intense capital return program that has seen Vistra repurchase one-quarter of its outstanding shares in three years. In that context, the current valuation of 91 times earnings is reasonable. Indeed, of the 15 analysts following Vistra, 14 rate the stock a buy. And even the lowest price target of $127 per share implies 2% upside.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
More Upside Than Nvidia: 2 Better Artificial Intelligence (AI) Stocks to Buy Now, According to Wall Street was originally published by The Motley Fool
