Nvidia (NASDAQ: NVDA) has been the foundation of the artificial intelligence (AI) boom. Its graphics processing units power virtually all of the most advanced AI systems, and the company has a strong presence in adjacent markets like AI networking equipment and software development tools.
However, billionaire David Tepper sold Nvidia in the third quarter and bought a shocking AI stock: electric utility Vistra (NYSE: VST). That was a bad pun, but Tepper is a good case study for investors because his hedge fund Appaloosa more than doubled the return of the S&P 500 (SNPINDEX: ^GSPC) in the last three years.
Importantly, Tepper only sold 65,000 shares of Nvidia during the quarter, which reduced his position by just 9%. So it would be unfair to assume he lost confidence in the semiconductor company. But Vistra accounted for 2.2% of his portfolio as of Sept. 30, whereas Nvidia accounted for just 1.1%.
Additionally, the trades described were made in the third quarter, which ended more than two months ago. Investors should reevaluate Nvidia and Vistra before making any decisions.
1. Nvidia
The investment thesis for Nvidia centers on its leadership in data center graphics processing units (GPUs). The company accounts for 98% of data center GPUs by shipment volume, and those chips have become the industry standard in accelerating workloads like training machine learning models and running inference on artificial intelligence (AI) applications.
Importantly, Nvidia is more than a chipmaker. It is an accelerated computing company that builds entire data center systems comprising GPUs, CPUs, networking, and chip interconnects. The company also provides a litany of software libraries and pretrained models that streamline AI application development. That vertically integrated strategy has made Nvidia "the world's de facto enabler of AI," according to Susquehanna analyst Christopher Rolland.
Nvidia reported excellent financial results in the third quarter of fiscal 2025, which ended in October 2024, beating consensus estimates on the top and bottom lines. Revenue increased 94% to $35 billion amid strong demand for AI infrastructure, and non-GAAP (generally accepted accounting principles) earnings jumped 103% to $0.81 per diluted share. The company anticipates 70% revenue growth (plus or minus two points) in the fourth quarter.
Going forward, Wall Street estimates that Nvidia's adjusted earnings will increase at 52% annually through fiscal 2026, which ends in January 2026. That makes the current valuation of 53 times adjusted earnings look quite reasonable.
Investors should feel confident about buying a small position in Nvidia today. Additionally, several analysts recommend buying the stock on dips of a few percentage points. I think that's a sensible strategy.
2. Vistra
Vistra is the largest competitive power producer in the U.S., with about 41,000 megawatts (MW) of capacity across its portfolio of natural gas, coal, nuclear, and solar energy plants. Importantly, Vistra also became the second-largest nuclear power company as measured by capacity after its Energy Harbor acquisition earlier this year.
Vistra operates in every major wholesale electricity market, but has a strong presence in the ERCOT (Texas) and PJM (Northeast). Data center electricity demand in those regions is expected to increase fivefold in the next five years, according to Grid Strategies. The driving force behind that demand is the growing prevalence of artificial intelligence infrastructure.
More broadly, U.S. electricity demand is forecast to increase at 2.4% annually through 2030, the fastest pace since the early years of the 21st century, and AI data centers are just one reason for that trend. The reshoring of manufacturing activity and electrification of the Permian Basin in West Texas are meaningful contributors to projected load growth.
Vistra reported encouraging financial results in the third quarter. Revenue rose 53% to $6.2 billion, and GAAP earnings increased 320% to $5.25 per diluted share. Management cited industrial and manufacturing activity as major contributors to 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 increase at 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 AI boom -- especially from outside the technology sector -- should consider buying a few shares today. Indeed, JPMorgan Chase recently named Vistra a "top pick" for 2025.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
