Key Takeaways

NRG Energy ( NRG ) was the S&P 500’s best-performing constituent Tuesday after Jefferies analysts upgraded the stock and raised their price target, saying “investors are sleeping” on the energy company.

In a note to clients Tuesday, the analysts lifted their rating for NRG stock to “buy” from “hold” and raised their price target to $113 from $93, implying about 12% upside from Tuesday's closing price of $101.16. Shares of NRG jumped close to 10% Tuesday and have nearly doubled in value so far in 2024.

NRG Energy, along with other utilities companies including Vistra ( VST ) and Constellation Energy ( CEG ), have seen their shares soar this year on expectations they could benefit from growing energy demand for data centers to support artificial intelligence (AI) .

However, Jefferies suggested investors could still be underestimating NRG's growth potential, writing that NRG may have "less upside from data centers than peers," but they believe "far less is priced-in today."

“Investors have largely overlooked NRG as the business has shifted to be more consumer-focused from generation-oriented, which creates a cleaner setup for shares," they added.

Jefferies also indicated NRG could announce an initial site deal with a data center when it reports its December quarter earnings, which would represent “an important milestone” for the company.