NRG Energy (NRG): A Bull Case Theory

We came across a bullish thesis on NRG Energy on Pacific Northwest Edge's Substack by David. As of 27ᵗʰ June, NRG Energy's share was trading at $161.54. NRG's trailing and forward P/E were 25.82 and 23.58 respectively according to Yahoo Finance.

NRG Energy, a major retail energy provider in the U.S., serves 6 million customers and has expanded its home services footprint by acquiring Vivint Smart Home in 2023, adding 2 million customers. The company is also one of the largest independent power producers in the U.S., with 13 gigawatts of power generation capacity from coal and natural gas, primarily in Texas. With the acquisition of LS Power, NRG will gain 13 gigawatts of gas-fired power plants, mostly in the eastern U.S., potentially enabling it to power 19.5% of U.S. households. This move is significant as NRG's power generation capabilities rely on natural gas and coal, which are still the backbone of the power grid, unlike wind and solar energy, which can be unreliable.

The company's acquisition of LS Power is expected to be a defining moment, but its market cap of $31 billion and a P/E of 26 already price in much of the future growth. NRG has a history of returning capital to shareholders aggressively, with a plan to buy back stock at a rate of $1 billion a year. However, the company's 2023 performance shows concerning signs, including negative cash from operations and free cash flow, despite which it still bought back $1.17 billion in common stock and paid out $381 million in dividends. The issuance of $635 million in preferred stock to fund these activities is also seen as a negative point, as it resembles taking on debt to return capital to shareholders.

Despite these concerns, NRG is set to become a crucial player in the U.S. power grid at a time when demand for electricity is expected to increase due to AI. The company's current stock performance and valuation present an interesting investment opportunity, although it may not be perfect due to the noted concerns about its financial management and capital allocation decisions. The potential for NRG to become a backbone of the power grid, combined with its aggressive capital return strategy, makes it a stock worth considering, but with caution due to the risks involved.

Previously we covered a bullish thesis on Vistra Corp. by desperate-pleasures in March 2025, which highlighted the company's strategic positioning to meet AI-driven energy demand, strong cash flow, and undervaluation due to market mispricing. The company’s stock price has appreciated approximately by 53.73% since our coverage. This is because the thesis played out. The thesis still stands as AI energy demand continues to rise. David shares a similar view but emphasizes NRG’s inorganic growth via acquisitions.

NRG isn't on our list of the 30 Most Popular Stocks Among Hedge Funds. While we acknowledge the risk and potential of NRG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.