The power sector’s tremendous rally on demand for electricity from artificial intelligence may just be getting started, with three stocks in particular poised for more upside next year, according to analysts. Constellation Energy , Vistra Corp. and Talen Energy soared in 2024 as investors realized that the independent power producers had nuclear and gas assets that will be highly sought after by the tech companies building out data centers to power AI. Vistra has more than tripled in value to become the second best performing stock in the S & P 500 this year, outpacing chip powerhouse Nvidia and trailing only Palantir Technologies . Constellation has nearly doubled, making it the 10th best performing stock just behind Broadcom . Talen Energy, not yet a member of the S & P, has also more than tripled this year. The rally is still in its “very early phase,” said Shahriar Pourreza, head of power and utilities at Guggenheim Securities. “You’re probably in the second inning right now,” Pourreza said. Investors haven’t even begun to “scratch the surface of how much power demand is going to come” from the tech companies scaling up AI, he said. More contracts After the rally this year, the power companies need to sign more power agreements with data centers in 2025, said Paul Zimbardo, head of power and utilities at Jefferies. Only a couple of agreements have been announced so far. Constellation unveiled a landmark deal to restart the Three Mile Island nuclear plant in Pennsylvania in a deal with Microsoft in September. Talen agreed to power an Amazon data center using electricity from its Susquehanna nuclear plant in Pennsylvania in March. But the best performing stock of the three, Vistra, hasn’t yet announced any similar deals. “Investors will be patient, but you really need to start putting points on the board next year, which I think they will,” Zimbardo said. “For Vistra and Talen, there’s a lot of potential upside. Constellation — more is priced in,” the analyst said. A deal announced by one will likely move the shares of the other two, Pourreza said. For example, Vistra rather than Constellation outperformed when the Three Mile Island restart was announced, he said. “You’re going to see deals announced in the near term, but who will announce it is less of a factor to me, because they will all move the sector higher whoever announces it,” Pourreza said. Vistra top pick Pourreza’s top pick is Vistra. The stock is cheaper than Constellation even after its rally to the top of the S & P 500, he said. It owns both nuclear and naturla gas-fueled assets that are attractive to data centers. “I like Vistra because I don’t have to bet whether the next deal is going to be a nuclear plant or it’s going to be a gas plant,” Pourreza said. Guggenheim has a 12-month price target for Vistra of $177 per share, implying about 26% upside from current levels. Jefferies, with a price target of $167, sees 19% upside. Talen has a gas portfolio in Pennsylvania that also potentially benefits from data center demand, Zimbardo said. Jefferies sees 36% upside for Talen from current levels with a price target of $269. The Guggenheim target of $246 per share implies about 25% upside. The analysts split on Constellation. While Jefferies rates the Baltimore-based spinoff from Exelon Corp. a hold, Guggenheim still sees Constellation as a buy with a price target of $328, indicating about 44% upside from where the stock trades today. To be sure, all three face risks ahead. The Federal Energy Regulatory Commission on Nov. 4 rejected Talen’s request to increase the amount of power the Susquehanna nuclear plant can dispatch to the Amazon data center. Constellation and Vistra joined Talen in falling on the news. “The risk is this fighting that you’re seeing at FERC is bugging out the data centers,” Pourreza said. They may not want to deal with a “cat fight between the wires companies and the power companies,” he said, referring to the transmission and distribution utilities and the independent power producers. The risk is that data center developers will seek solutions elsewhere, he said. Amazon recently announced investments in small nuclear reactors. Exxon is interested in building a gas plant for a data center . “The whole danger is, is that the data centers bypass” the likes of independent power producers Talen, Vistra and Constellation, Pourreza, the Guggenheim analyst, said.