Nuclear Energy Stocks: Powering the Future for AI and Big Tech
Nuclear energy stocks have been gaining traction on Wall Street as the demand for power grows, driven in part by the rapid rise of artificial intelligence (AI).
With tech giants like Amazon AMZN 0.00%↑, Microsoft MSFT 0.00%↑, and Google GOOG 0.00%↑ expanding their operations and relying on data centers for their AI advancements, the need for consistent, large-scale power sources has become critical. This demand has led Big Tech to turn to nuclear energy, seen as a reliable and clean energy solution.
This trend has fueled the growth of nuclear energy stocks, with companies like Vistra VST 0.00%↑ and Constellation Energy CEG 0.00%↑ leading the charge. Vistra has even outpaced big names like Nvidia in the S&P 500 this year, highlighting nuclear energy's potential as a major growth sector.
The AI-Powered Demand for Power
As AI continues to evolve, so does its power requirement. According to Clay Sell, CEO of nuclear reactor designer X-energy, AI could drive as much as a 10% to 20% increase in U.S. electricity demand over the next 25 years. To put this into perspective, Apollo’s chief economist Torsten Sløk estimates that the AI boom might require adding enough power to equal the electricity consumption of three New York Cities by 2030.
For Big Tech, this surge in demand means they need stable and large-scale power sources, and nuclear energy fits the bill. Traditional energy sources like coal or natural gas are still available, but nuclear energy provides a low-emission, reliable alternative that aligns with many tech companies' environmental goals.Â
Nuclear’s Role in Co-Location Agreements
One approach tech firms have embraced is "co-location" agreements. Co-location allows these companies to directly source energy from an existing plant to power their data centers. It’s a win-win situation where tech companies benefit from secure energy sources, while energy providers secure long-term contracts. However, regulatory hurdles have shown the complexity of balancing power needs and grid stability.
On November 1, the Federal Energy Regulatory Commission (FERC) issued a ruling rejecting a proposal from Talen Energy (TLN) to increase its power supply to Amazon, citing concerns over grid reliability. This ruling caused stocks in nuclear power companies like Talen, Oklo, Centrus Energy, Vistra, and NuScale to dip, reflecting investors' worries about potential regulatory obstacles.
Small Modular Reactors (SMRs): The Future of Nuclear?
In addition to traditional reactors, many companies are now exploring small modular reactors (SMRs) to meet rising energy demands. SMRs are compact and can be built closer to where power is needed, making them ideal for localized power needs like data centers. While no SMRs are currently operating in the U.S., they are seen as a promising solution by companies like Amazon, which sees SMRs as a potential way to increase power availability without adding strain to the existing power grid.
Timothy Fox, managing director at ClearView Energy Partners, explained that while the FERC ruling could be a setback, it may not signal long-term challenges. Instead, it highlights the need for clearer policies around co-location agreements.
Why Investors Are Watching Constellation Energy
Amid the ups and downs of nuclear energy stocks, Constellation Energy (CEG) stands out. As the largest nuclear operator in the U.S., Constellation has three times more megawatt capacity than its nearest competitor. The company's CEO, Joseph Dominguez, reaffirmed its commitment to nuclear energy despite the FERC ruling, stating that co-location is one of the most effective ways to rapidly scale data center construction to meet AI demands.
Constellation recently reported strong earnings, yet its stock experienced a slight drop due to the regulatory uncertainties surrounding the FERC ruling. However, CFRA analyst Daniel Rich suggests that the dip might present a buying opportunity. Rich argues that nuclear energy will play a significant role in meeting the growing power needs of major tech firms, making Constellation a valuable investment to consider.
The Path Forward for Nuclear Energy and Big Tech
Despite regulatory challenges, the future of nuclear energy stocks looks promising, especially with Big Tech's unwavering interest in expanding data center capabilities. Nuclear energy’s ability to provide reliable, carbon-free power aligns well with tech companies' environmental goals and their increasing need for power.
For investors, nuclear energy stocks may offer both growth potential and stability in a sector that will likely be crucial to supporting the future of AI and data-driven advancements. As Big Tech continues to drive demand and invest in nuclear energy solutions, these stocks are worth watching for those interested in the intersection of energy and technology.
*Disclaimer: Not Financial Advice. Investors should conduct thorough research and seek professional advice before making any investment decisions.
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