About a month ago, I told investors to buy the dip in nuclear energy stocks. I still believe that and, in fact, there has been more positive news since then.
First, two realities are still with us. One, Big Tech companies building massive data centers to meet the needs of artificial intelligence (AI) still are looking for as much power as electric utilities can supply – and they prefer clean energy. And two, they want the power sooner rather than later. Thanks to their huge cash piles, they can both afford to, and are willing to, pay a premium for power, especially nuclear power.
That's because nuclear power gives Big Tech companies exactly what they want - clean energy that is available 24/7 and not dependent on the weather. However, electric utilities have been reluctant to build new conventional reactors. That's thanks to not only high costs, but to regulatory hurdles that can delay a project for many years, lengthening construction timelines. It took 17 years Southern Company (SO) to finally complete its Vogtle expansion.
That’s where Big Tech comes in. Their huge cash piles can offset the financial risk to utilities.
Meta Platforms Is Going Nuclear
The latest example of that came from Meta Platforms (META) on Dec. 3. The company announced it was looking for nuclear power developers to submit proposals to it that will deliver from 1 gigawatt (GW) to 4 GWs of reactor capacity for its data centers.
The company said it will consider both large, conventional reactors and what I think will become the go-to choice for technology firms, small modular reactors (SMRs). These reactors are faster and cheaper to deploy, but have yet to be proven on a wide-scale basis.
I believe SMRs will be the main solution to meet Meta’s needs because it is looking for nuclear power developers that can fast-track new nuclear generators and that can lower costs through scalable deployment.
Unlike traditional nuclear reactors, SMR parts can be built comparatively quickly at factories and then assembled on-site. This is a real time and money saver compared to conventional reactors. In addition, SMRs are flexible - just one SMR can be used individually, or several can be bundled together.
Meta is going to follow a tried-and-true approach that worked with renewable energy firms. It will work closely with its partners in nuclear - they will be responsible for the technical stuff - designing, building, and operating the nuclear plants. Meta will mainly come in to help meet any financial challenges.
Along these lines, Meta announced plans for a $10 billion AI data center in Richland Parish, Louisiana. To power this humongous data center, the Facebook parent is partnering with provider Entergy (ETR).
Tech Giants and Reactors Are Going to Need More Fuel
All of the next-generation reactors will need nuclear fuel.
According to the International Atomic Energy Agency (IAEA), “Many advanced reactor designs, including small modular reactors (SMRs), will require high assay low enriched uranium (HALEU) fuel, which ranges from 5% to 20% of uranium-235 — beyond the 5% level that powers most nuclear power plants in operation.” The IAEA added that "HALEU fuel will enable smaller designs, longer operating cycles and increased efficiencies.”
The problem with HALEU is that it is currently produced primarily in Russia. At the moment, Russia owns roughly 22% of global uranium conversion capacity and 44% of global enrichment capacity. That has led to the price being almost ephemeral. Price estimates for HALEU range from $25,000 to $35,000 per kilogram of uranium.
In October, the U.S. government rolled out initial contracts to four companies to produce HALEU in the U.S. The funds were included in a law to ban uranium shipments from Russia entirely by 2028. Per a Reuters article, the Department of Energy said that “all contracts will last for up to 10 years and each awardee receives a minimum contract of $2 million, with up to $2.7 billion available for these services, subject to the availability of appropriations.”
One of the companies awarded a contract is one I’ve mentioned here and here, Centrus Energy (LEU).
Why Centrus Energy Stock Stands Out
So far, the existing nuclear fuel companies in the West - Orano and Urenco - have only said it is far too costly to build new conversion capacity.
That’s where Centrus believes it can fill the gap left by these companies. It already began producing HALEU from a demonstration plant in Piketon, Ohio, last November. Using its proprietary 16-centrifuge cascade system, Centrus enriched uranium enough that it was able to produce 20 kilograms of HALEU. No one else has managed to produce the fuel on U.S. soil ever!
As I said in my prior stories, “LEU is the only publicly traded company addressing nuclear fuel enrichment in the world. Also, it is the only company with an NRC (Nuclear Regulatory Commission) license for HALEU production to supply commercial and national security needs.”
I believe U.S. government support for LEU will continue, even under President-elect Donald Trump. It is vitally important to our national security that our country has the capability to enrich uranium and produce nuclear fuel domestically. With its unique technical expertise with regard to HALEU, Centrus Energy is well-positioned to grow with the nuclear industry in the U.S.
LEU stock is a buy at the current price of around $75.
