This Little-Known AI Stock Is Up 315% in 2024, and History Says It Could Soar Again in 2025 (Hint: Not Palantir)

Shares of Palantir Technologies have advanced 290% year to date as unrelenting demand for its artificial intelligence (AI) platform has led to a series of strong financial results. While impressive, Palantir is only the second-best performing member of the S&P 500 (SNPINDEX:$SPX) this year.

The top spot goes to electric utility Vistra (NYSE:VST). Its share price has rocketed 315% year to date based on expectations that AI data centers will create tremendous demand for electricity. Indeed, Goldman Sachs says power demand is poised to surge at its fastest pace since the early years of the 21st century.

Interestingly, the best-performing S&P 500 stock in any given year has typically gone on to produce strong gains in the subsequent year. In other words, history says Vistra could carry its momentum into 2025.

History says Vistra stock could soar in 2025

Listed below are the best performing stocks in the S&P 500 in each year of the last decade, and the returns they generated during the next calendar year.

Data source: The Wall Street Journal, CNBC, YCharts. Note: The asterisk beside Nvidia's return indicates the figure is not yet finalized because the year is still in progress.

As shown above, the top S&P 500 stock during each calendar year of the past decade has returned an average of 64% during the subsequent year. However, investors shouldn't focus on the specific figure so much as the overall trend. Winning stocks tend to keep on winning. That bodes well for Vistra in 2025.

Vistra could be a major winner throughout the artificial intelligence boom

The Federal Energy Regulatory Commission (FERC) anticipates U.S. electricity demand will increase at 4.7% annually through 2029. That is an upward revision to the five-year forecast of 2.6% annually proposed by the FERC a year earlier. Factors contributing that trend are new manufacturing activity and increased data center power consumption driven by artificial intelligence (AI).

Vistra is an independent power producer well positioned to capitalize on that trend. The company operates in every major wholesale market in the U.S., and its capacity of 41,000 megawatts (MW) that spans gas, coal, nuclear, and renewable power plants makes it the largest domestic power generator. Vistra is also the largest residential electricity retailer, and it owns the second largest domestic nuclear fleet.

Looking ahead, Vistra sees two potentially important sources of incremental demand in the coming years. First, electrification of the Permian Basin in West Texas is expected to boost demand by 20,000 MW by 2030, driven by population growth and industrial activity. Second, the proliferation of AI data centers is expected to add 35,000 MW by 2030.

Vistra stock trades at a reasonable valuation

In summary, the FERC has upwardly revised its outlook, such that U.S. electricity demand is forecast to grow at its fastest pace in more than a decade. Further upward revisions could follow as the situation evolves. And Vistra is well positioned to benefit given its unmatched generation capacity and sizable nuclear fleet.

Importantly, many experts see nuclear power as a good solution to growing data center demand because it is a source of clean energy, yet more reliable than renewables like wind and solar. Vistra stock would likely soar if the company inked a nuclear deal like the one between Microsoft and Constellation Energy.

However, investors should be aware of the regulatory risk. The FERC recently rejected a proposal that would have let Amazon plug an AI data center directly into a nuclear reactor run by Talen Energy in Pennsylvania. The FERC said it will allow Amazon to access about 300 MW of power from the reactor, much less than the 480 MW the company wanted.

That rejection dented the idea that AI data centers will bring about a nuclear renaissance, but the thesis itself is not broken. Unlike Microsoft's deal with Constellation, Amazon's deal with Talen would have bypassed the electric grid, allowing Amazon to avoid paying for grid infrastructure while siphoning power away.

Looking ahead, Wall Street expects Vistra's earnings to increase at 22% annually through 2026. That makes the current valuation of 29 times earnings look reasonable. Investors should consider buying a position in this little-known AI stock today. Indeed, analysts at JPMorgan Chase and Jefferies have selected Vistra as a top pick in the utilities sector.

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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. JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Amazon, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Goldman Sachs Group, JPMorgan Chase, Jefferies Financial Group, Netflix, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends Constellation Energy, Occidental Petroleum, and Southwest Airlines. The Motley Fool has a disclosure policy.