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 such as 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 stock’s return. S&P500 (SNPINDEX: ^GSPC) in the past three years.
Importantly, Tepper sold just 65,000 shares of Nvidia during the quarter, reducing his position by just 9%. So it would be unfair to assume that he has lost confidence in the semiconductor company. But Vistra accounted for 2.2% of its portfolio as of September 30, while Nvidia accounted for just 1.1%.
Moreover, the transactions described took place in the third quarter, which ended more than two months ago. Investors should reassess Nvidia and Vistra before making a decision.
The investment thesis for Nvidia focuses on its leadership in graphics processing units (GPUs) for data centers. The company is responsible for 98% of data center GPUs by shipment volume, and these chips have become the industry standard in accelerating workloads such as training machine learning models and performing inference on artificial intelligence (AI) applications.
Importantly, Nvidia is more than a chipmaker. It is an accelerated computing company that builds complete data center systems consisting of GPUs, CPUs, networks and chip connections. The company also offers a litany of software libraries and pre-trained models that streamline AI application development. That vertically integrated strategy has made Nvidia the “world’s de facto enabler of AI,” he said Susquehanna analyst Christopher Rolland.
Nvidia reported strong financial results in the third quarter of fiscal 2025 ending October 2024, beating consensus estimates on the top and bottom lines. Revenue rose 94% to $35 billion due to strong demand for AI infrastructure, and non-GAAP (generally accepted accounting principles) earnings rose 103% to $0.81 per diluted share. The company expects fourth-quarter revenue growth of 70% (plus or minus two points).
Wall Street estimates that Nvidia’s adjusted earnings will grow 52% annually going forward through fiscal 2026, which ends in January 2026. That makes its current valuation of 53 times adjusted earnings quite reasonable.
Investors should buy a small position in Nvidia today with confidence. Moreover, several analysts recommend buying the shares when there is a dip of a few percentage points. I think that’s a sensible strategy.
Vistra is the largest competitive energy producer in the US, with approximately 41,000 megawatts (MW) of capacity across its portfolio of natural gas, coal, nuclear and solar power plants. Importantly, Vistra also became the second-largest nuclear power company by capacity after acquiring Energy Harbor earlier this year.
Vistra operates in every major wholesale electricity market, but has a strong presence in ERCOT (Texas) and PJM (Northeast). According to Grid Strategies, demand for electricity from data centers in these regions is expected to increase fivefold over the next five years. The driving force behind this demand is the increasing presence of artificial intelligence infrastructure.
More broadly, U.S. electricity demand is expected to grow 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 this trend. Relocating manufacturing activities and electrifying the Permian Basin in West Texas are major contributors 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 activities as key contributors to the strong growth. The company also increased its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2024 and 2025, and initiated optimistic guidance for 2026.
Wall Street expects Vistra’s profits to rise 24% annually through 2025. That consensus estimate makes the current valuation of 26.5 times earnings seem reasonable. Investors wanting more exposure to the AI boom – especially from outside the tech sector – should consider buying a few stocks today. Indeed, JPMorgan Chase recently named Vistra a “top pick” for 2025.
Consider the following before buying shares in Nvidia:
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JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennevine has positions at Nvidia. The Motley Fool has and recommends positions in JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.
Billionaire David Tepper sells Nvidia stock and buys shocking artificial intelligence (AI) stock instead was originally published by The Motley Fool
