JPMorgan says buy power producers as AI data centers shift electric demand

Independent power producers Vistra , Constellation Energy and Talen Energy are positioned to benefit from a “paradigm shift” in electric demand from artificial intelligence data centers, according JPMorgan. The investment bank initiated coverage of the stocks Thursday with overweight ratings. Shares of the three power companies are poised for more upside even after their tremendous rally this year, according to a team of analysts led by Jeremy Tonet. “We see structural tailwinds, including manufacturing onshoring, broader electrification trends (transportation, heating, and more), as well [as] data center development underpinning a paradigm shift in power demand,” Tonet and his team told clients in research report. Power supply in competitive electricity markets will not keep pace with demand, enabling the three companies “to capture outsized margins for an extend period of time,” the analysts wrote. Demand from tech companies for carbon-free power to drive their data centers will transform nuclear power and enable its owners to “command a substantial premium,” they wrote. Vistra is JPMorgan’s top pick with a price target of $178, suggesting upside of 31% from Wednesday’s close of $135.69 per share. The Texas-based power producer has already more than tripled this year, soaring 252%. Vistra can offer natural gas- and nuclear-fueled power to data center customers. With half of its gas generation in the Texas ERCOT grid, Vistra can also help fill a potential 40 gigawatt supply gap in the Lone Star State by 2030, according to JPMorgan. VST 1Y mountain Vistra shares over the past 12 months. Meanwhile, Constellation’s industry leading nuclear fleet is well positioned to continue capturing long-term power contracts with data center developers at premium prices, according to JPMorgan. Its decision last month to restart Three Mile Island after signing a power purchase agreement with Microsoft was an industry milestone. The investment bank has a price target of $342 on Constellation, implying 22% upside from Wednesday’s close of $279.80 per share. Constellation’s stock has more than doubled this year. CEG 1Y mountain Constellation Energy shares over the past 12 months. Finally, Talen’s multi-decade agreement with Amazon Web Services to power a data center campus with electricity generated at the Susquehanna nuclear plant in Pennsylvania could help send the stock higher if it delivers the full 960 megawatts of power to AWS, according to JPMorgan. Susquehanna also offers additional power that can be contracted. JPMorgan has a price target of $268 on Talen shares, suggesting upside of nearly 57% from Wednesday’s close of $171.05. Talen’s stock, too, has more than doubled this year. TLN 1Y mountain Talen Energy stock over the past year