Summary
Vistra Corp. (NYSE: VST) is an integrated retail electricity and power generation company based in Irving, Texas. Its fleet spans natural gas, nuclear, coal, solar and battery storage, with particularly valuable positions in ERCOT and PJM. The stock has fallen over 30% in the past year, as investors have questioned how effectively power generators can capture the economics of rising electricity demand. The initial re-rating in 2024 was also aggressive, so some normalization was expected after the stock rose more than 500% from the beginning of 2023 through the end of 2024. Today, however, the stock is essentially back to its year-end 2024 level even as AI-driven power demand has continued to materialize. The company appears well positioned to benefit from this through its large fleet of already built and interconnected generation, while new nuclear power purchase agreements (PPAs) are making future earnings more predictable.
Part I: The Next AI Bottleneck According to Jensen Huang
Jensen Huang, founder and CEO of NVIDIA, said “Land, power and shell have become vital in the age of AI. Now is the time to scale the AI infrastructure that will power the next industrial revolution.” Electricity demand is expected to increase substantially over the next years as AI-focused data centers require increasing amounts of power. According to the IEA’s 2026 projections, electricity consumption from data centers is expected to double from 485 TWh in 2025 to 950 TWh in 2030. AI-focused data centers are expected to grow much faster than the overall sector, with their electricity consumption tripling over the same period. [Pg. 10]
The IEA also highlights an important limitation to this growth: AI can scale digitally much faster than the power system can scale physically. Transformer lead times are now roughly 2-3 years, gas-turbine deliveries can take around 5 years, and grid-connections can take 5-10 years in some jurisdictions. [Pg. 21] This mismatch makes existing power infrastructure increasingly valuable, strengthening Vistra’s competitive position, as the company already owns 44 GW of operating and interconnected generation capacity. [Pg. 12]
Electricity demand is already accelerating in Vistra’s two most important markets, as reflected in stronger peak load growth (the increase in the highest level of electricity demand reached at any given time). From 2022 to 2026, annual peak load grew at a 3.0% CAGR in PJM, compared with 0.6% from 2014 to 2022, and at a 3.3% CAGR in ERCOT, compared with 2.4% from 2014 to 2022. Both markets also set new peak load records in 2026, while management expects energy demand to grow by 2-3% in PJM and 4-6% in ERCOT going forward. [Pg. 12]
For Vistra, stronger demand can translate directly into higher cash generation. In Q2 2026 Adj. EBITDA reached nearly $1.8 billion, up more than 30% year over year, due in part to higher realized energy prices and capacity revenues. [Pg. 8] However, the full benefit of stronger market conditions should come through gradually, as Vistra is already approximately 100% hedged for 2026, 94% for 2027 and 72% for 2028. As these hedges roll off, the company should gain greater exposure to higher market prices. Because Vistra already owns a large fleet of built and interconnected generation, much of this upside can flow through free cash flow, consistent with management’s expectation of converting more than 60% of Adj. EBITDA to Adj. FCFbG. [Pg. 9]
Part II: Natural Gas as the Near-Term Backbone of AI
Even though the spotlight today is on nuclear, natural gas will also play a fundamental role in meeting rising electricity demand, particularly in the short and medium term. Even when data centers contract electricity through nuclear PPAs, that power may not be generated near the data center or at the specific time it is needed. As a result, the grid often relies on dispatchable sources such as natural gas and coal to meet actual demand. Natural gas is becoming increasingly important, with more than 100 GW of new natural gas generation capacity currently planned as dedicated onsite supply for data centers. [Pg. 49]
The challenge is that most of this capacity has not yet been built, with most projects still in announced or pre-construction stages. Building new natural gas generation also faces many of the same bottlenecks discussed earlier. Global orders for natural gas turbines reached their second-highest level on record in 2025 and their highest point in 25 years. [Pg. 54] This makes Vistra’s existing fleet increasingly valuable as the company already owns approximately 27.3 GW of natural gas capacity. [Pg. 12]
Natural gas utilization is already increasing across Vistra’s fleet. CCGT capacity factors, which measure how intensively gas plants are being used, increased from 55% to 63% in Texas and from 51% to 54% in the East between Q2 2025 and Q2 2026. At the same time, total generation rose from 45.6 TWh to 50.2 TWh year over year. [Pg. 22] The economics of gas generation are also expected to improve: in Texas, the weighted-average spark spread (an approximation of the gross margin earned per MWh of natural gas generation) is expected to increase from $20.63/MWh for 2026 to $22.40/MWh in 2027 and $24.02/MWh in 2028, while power prices rise from $42.69/MWh in 2026 to $46.32/MWh in 2027 and $50.30/MWh in 2028. [Pg. 20]
Vistra is also increasing its natural gas exposure through the acquisition of Cogentrix, which will add approximately 5.5 GW of natural gas generation capacity. The transaction values the portfolio at roughly $4.0 billion net of expected tax benefits, or approximately $730/kW and 7.25x expected 2027 Adj. EBITDA. Management expects the acquisition to be accretive to Adj. FCFbG per share by the mid-single digits in 2027 and by the high single digits from 2027 to 2029. Importantly, Vistra’s current 2026 and 2027 guidance exclude any potential contribution from Cogentrix, leaving additional upside if the transaction closes and performs as expected.
Part III: Nuclear PPAs Drive Vistra Toward More Predictable Earnings
Besides natural gas and coal, nuclear is Vistra’s third-largest generation source, with 6.6 GW of capacity. While nuclear represents 15% of total generation capacity, it contributes around 24% of total production, reflecting the high utilization of these plants. [Pg. 12] More importantly, nuclear is becoming an increasingly valuable part of Vistra’s portfolio as the company signs PPAs with some of the largest technology companies in the world. These contracts make earnings more predictable by locking in demand and reducing exposure to merchant power prices.
Vistra has signed a 20-year PPA with AWS for 1.2 GW beginning in late 2027, as well as agreements with Meta for 2.2 GW of existing nuclear capacity plus 433 MW from future uprates. The Meta contracts begin partially in late 2026, with the full existing capacity expected to be delivered by late 2027. Management expects the AWS and Meta PPAs to move the company toward nearly 50% of EBITDA from retail and contracted revenue sources. [Pg. 9] Similar to the Cogentrix acquisition, the Meta PPAs are not included in 2026 and 2027 guidance, creating another source of potential upside if execution goes as planned.
Fundamentals and Valuation
For power generation companies, reported earnings can be highly volatile due to mark-to-market movements on hedging positions. This was the case last quarter, when Vistra recorded $472 million of unrealized hedging losses. Vistra excludes these unrealized gains and losses from Adj. EBITDA, making it a better measure of underlying operating performance. From 2021 to 2025, Adj. EBITDA increased from approximately $1.9 billion to $5.9 billion (a CAGR of 32.11%).
The company also has a very strong free cash flow profile. FCFbG was $2.9 billion in 2024 and 3.6 billion in 2025, while the midpoint of 2026 guidance is approximately $4.3 billion. The company also has a reasonable level of liquidity with a current ratio of 0.97. Despite its strong growth, healthy balance and cash generating capabilities, the company trades at a P/FCFbG of 10.7x, well below the 16.2x of 2024 and 15.2x of 2025, which suggests a potential upside of 47% if it were to trade in line with the average for that period.
Downside Risks
- If electricity demand from AI-focused data centers falls short of expectations, power prices could disappoint.
- Vistra’s large hedge book limits near-term upside and could create earnings volatility as positions roll off.
- Plant outages or unfavorable moves in power prices could reduce generation profitability.
- The Cogentrix acquisition and Meta PPAs introduce execution risk, as delays could reduce the expected earnings contribution.
Conclusion
We believe that Vistra’s initial re-rating between 2023 and 2024 was well justified, as the AI infrastructure buildout is driving a structural acceleration in electricity demand while new power supply remains constrained. This increases the value of Vistra’s existing generation capacity. As hedges roll off, the company should gain greater exposure to improving market conditions, while its nuclear PPAs progressively shift the earnings mix toward more predictable revenues. We believe this combination can support a return toward the higher valuation multiples seen in 2024 and 2025.
Disclaimer: This report represents our opinion and is not financial advice.