NVIDIA(NASDAQ: NVDA) has been the basis of the rise of artificial intelligence (AI). Its graphics processing units power virtually all of the most advanced AI systems, and the company has a strong presence in adjacent markets such as AI networking equipment and software development tools.
However, billionaire David Tepper sold Nvidia in the third quarter and bought a killer AI stock: the electric utilities company. View(NYSE: VST). It was a bad pun, but Tepper is a good case study for investors because his Appaloosa hedge fund more than doubled the return of the S&P 500(SNPINDEX: ^GSPC) in the last three years.
Importantly, Tepper only sold 65,000 Nvidia shares during the quarter, reducing his position by only 9%. Therefore, it would be unfair to assume that he lost confidence in the semiconductor company. But Vistra represented 2.2% of its portfolio as of September 30, while Nvidia represented only 1.1%.
Furthermore, the operations described were carried out in the third quarter, which ended more than two months ago. Investors should re-evaluate Nvidia and Vistra before making any decisions.
Nvidia’s investment thesis focuses on its data center leadership graphics processing units (GPU). The company represents 98% of data center GPUs by shipment volume, and those chips have become the industry standard for accelerating workloads such as training machine learning models and run inferences in artificial intelligence (AI) applications.
It’s important to note that Nvidia is more than a chip maker. It is an accelerated computing company that builds complete data center systems including GPUs, CPUs, networking, and chip interconnects. The company also offers a host of software libraries and pre-trained models that streamline AI application development. That vertical integration strategy has made Nvidia “the de facto enabler of AI in the world,” according to Susquehanna analyst Christopher Rolland.
Nvidia reported excellent financial results in the third quarter of fiscal 2025, ending October 2024, surpassing consensus estimates on the results. Revenue rose 94% to $35 billion amid strong demand for AI infrastructure, and non-GAAP (generally accepted accounting principles) earnings rose 103% to $0.81 per diluted share. The company forecasts revenue growth of 70% (plus or minus two points) in the fourth quarter.
Looking ahead, Wall Street estimates that Nvidia’s adjusted earnings will rise 52% annually through fiscal 2026, which ends in January 2026. That makes the current valuation of 53 times adjusted earnings look pretty reasonable.
Investors should feel confident buying a small position in Nvidia today. In addition, several analysts recommend buying shares in declines of a few percentage points. I think it’s a sensible strategy.
Vistra is the largest competitive power producer in the US, with around 41,000 megawatts (MW) of capacity across its portfolio of natural gas, coal, nuclear and solar plants. Importantly, Vistra also became the second-largest nuclear energy company measured by capacity after its acquisition of Energy Harbor earlier this year.
Vistra operates in all major wholesale electricity markets, but has a strong presence in ERCOT (Texas) and PJM (Northeast). Electricity demand from data centers in those regions is expected to increase five-fold over the next five years, according to Grid Strategies. The driving force behind that demand is the increasing prevalence of artificial intelligence infrastructure.
More broadly, U.S. electricity demand is forecast to grow at a rate of 2.4% annually through 2030, the fastest pace since the early years of the 21st century, and AI data centers They are just one of the reasons for that trend. The relocation of manufacturing activity and the electrification of the Permian Basin in West Texas contribute significantly to projected load growth.
Vistra reported encouraging financial results in the third quarter. Revenue rose 53% to $6.2 billion and GAAP earnings rose 320% to $5.25 per diluted share. Management cited industrial and manufacturing activity as the main contributors to the strong growth. The company also raised its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for 2024 and 2025, and initiated optimistic guidance for 2026.
Wall Street expects Vistra’s earnings to rise 24% annually through 2025. That consensus estimate makes the current valuation of 26.5 times earnings look reasonable. Investors who want more exposure to the rise of AI, especially from outside the technology sector, should consider buying some stocks today. Indeed, JPMorgan Chase It recently named Vistra as one of the “top picks” for 2025.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine He has positions at Nvidia. The Motley Fool has positions and recommends JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.
