A year ago, as the artificial intelligence boom gathered momentum, Oklo, the nuclear power startup backed by OpenAI head Sam Altman, was discussing deals to supply customers with megawatts worth of energy. Today, its clients want 1,000 times that much.
Jacob DeWitte, chief executive of the developer of small, fast-fission nuclear plants, sensed that the business was poised to ramp up. But "the rate at which it's happened and the timing at which it started was all faster than we expected," DeWitte said in an interview.
The trigger: The artificial intelligence frenzy that erupted when ChatGPT opened the world's eyes to the wonders of generative artificial intelligence. Organizations of all kinds jacked up development of AI applications. That's driving up demand for data centers where the resource-intensive programs could run. And all those data centers suck up electricity — lots of it. Suddenly, long-maligned nuclear power technology started to look attractive. Especially to the tech companies and executives with the biggest need for more electricity.
How much energy demand will be filled by nuclear power is unclear. Some analysts are skeptical that capacity will ramp up enough to meet a big part of data centers' needs. But Amazon.com, Microsoft and Google-parent Alphabet have all made bets on nuclear power supply. Bill Gates has become a leading investor in the technology. Jeff Bezos is backing a nuclear startup in Canada.
Nuclear Stock Options
In stock market terms, Oklo — which has yet to deliver an operating, commercial reactor — has been anything but a highflying stock. Its shares are trading below their 2021 IPO price of 10. But select utility stocks and supplier companies have shot higher. Constellation Energy trades 88% higher for 2024. Vistra rocketed 139% this year. Public Service Enterprise was up 26% after a breakout on Tuesday. Shares of Curtiss-Wright, which supplies products and services to nuclear plants, gained 27%.
"This growth that we are beginning to see now, it's been unprecedented in my career and I've been in the energy and utility space for three decades," FuelCell Energy Chief Commercial Officer Mark Feasel told IBD. FuelCell Energy is a leading provider of site-based, hydrogen-fed generators that help reduce corporate carbon footprints.
"Not only is it unprecedented, but it's really unanticipated," Feasel added. "Just a few years ago, there was a lot of talk of a utility doom loop."
Artificial Intelligence And Data Centers' Power Appetite
The International Energy Agency says more than 7,000 data centers are in operation or development worldwide. That's up from 3,600 in 2015.
In the U.S., McKinsey & Co. projects that data center energy demand will grow around 10% every year through the end of the decade. In 2022, the 2,700 data centers consumed around 4% of total U.S. electricity, according to the IEA. The agency projects that by 2026, they'll make up 6% of electricity use.
Goldman Sachs projected in April that U.S. data centers will use 8% of total power by 2030. This translates to about 2% demand growth per year. Analysts expect a 40% demand jump over the next 20 years, compared with just 9% growth in the past two decades.
Bill Gates, Jeff Bezos And Sam Altman Get In On Nuclear
At the American Nuclear Society's annual conference in June, a Microsoft executive said the company's electricity load growth, its projected increase in power needs, was manageable four years ago. But around 18 months ago, as the AI charge started, Microsoft's load growth curve soared. It "went from being exponential to kind of looking like a wave and bending back over on itself," he said.
"With load growth where it is, we need continued development of clean, firm resources, and nuclear fits that bill," said Adrian Anderson, general manager of energy and sustainability at Microsoft.
Amazon and Alphabet also have placed low-emission nuclear power high on their list of energy sources for their artificial intelligence and data centers.
Tech figures leaned toward nuclear energy even before ChatGPT arrived. In late 2021, Amazon founder Jeff Bezos and other investors raised more than $130 million in venture capital for General Fusion, a British Columbia, Canada-based nuclear company. The next year, Google kicked off a $250 million fundraising round for TAE Technologies, a nuclear fusion startup.
Then, in June 2023, Microsoft signed a deal with Constellation Energy, a leading U.S. nuclear power supplier, to add nuclear-generated, "carbon-free electricity" for its Virginia data centers.
Amazon made a move toward nuclear in March, paying $650 million for a Talen Energy nuclear-powered data center campus in Pennsylvania. Amazon arranged for the Amazon Web Services, or AWS, facility to eventually get up to 960 megawatts of electricity from Talen's Susquehanna nuclear site. That's enough to power hundreds of thousands of homes.
Two utilities, American Electric Power and Exelon, challenged Amazon's plan. They claim around $140 million in costs a year could shift to ratepayers. They called on the Federal Energy Regulatory Commission to review the deal.
Amazon reportedly plans to invest more than $100 billion in AI and data centers over the next decade.
Oklo Bets On Future
Meanwhile, others play their hands. In early June, Bill Gates and his energy company TerraPower broke ground in Kemmerer, Wyo., on their new Natrium nuclear power plant.
The company applied to the Nuclear Regulatory Commission in March for a construction permit. The project is for an advanced nuclear reactor that uses sodium, not water, for cooling. If the NRC approves, it aims to operate as a commercial nuclear power plant. At this point, no links are reported to data centers.
Santa Clara, Calif.-based Oklo agreed in May to supply data centers being developed by Wyoming Hyperscale with 100 megawatts of clean power for the next 20 years.
The startup is also working on advanced fuel-recycling technologies. It works in collaboration with the U.S. Department of Energy and U.S. National Laboratories. Altman, the OpenAI CEO, serves as Oklo chairman and has since 2015.
Nuclear development can be a one-step-up, two-steps-back dance. In 2022, the Nuclear Regulatory Commission denied Oklo's application for its Aurora powerhouse in Idaho. The commission cited a lack of safety information. Last October, the Air Force rescinded its intent to award Oklo a contract for a microreactor pilot program to power a base in Alaska.
Oklo, confident that federal regulators will approve the project, says it is still on track to first deploy energy in 2027. The company says more deals are in the pipeline and it has "tremendous uptake of customer interest."
Small Modular Nuclear: Not Yet
Observers note that nuclear power makes sense for top hyperscalers — the largest cloud, data center and artificial intelligence providers. Small modular reactors, or SMRs, can be located on-site at data centers. They can provide consistent, uninterrupted power without external connections. This might lower data center power costs by eliminating or reducing transmission and distribution charges. Such fees can represent as much as half of a typical electric bill.
David Porter, vice president of electrification and sustainable energy strategy for the Electric Power Research Institute, told IBD that hyperscalers and other data center developers have "great interest" in small modular nuclear reactors.
But while he sees "huge potential," Porter says those new reactors "aren't going to have a role" in supplying data centers with energy until at least 2030. That's due to the slow process of developing the technology.
Another note of caution comes from Wood Mackenzie. It sees U.S. nuclear generation capacity, which now totals around 98 gigawatts, growing by less than 12 gigawatts through 2050. Of that new capacity, most will be small modular reactors.
"In short, nuclear would be too little, too late to manage the massive demand we'll confront this decade," said Wood Mackenzie analyst Ben Hertz-Shargel.
Nuclear Energy: $1.5 Trillion In Investment?
Morgan Stanley analysts, on the other hand, believe a "nuclear renaissance" is underway. They wrote recently that nuclear power, while still a divisive issue, is making a comeback. The firm sees $1.5 trillion in investment in new capacity through 2050.
Morgan Stanley has overweight ratings on eight stocks across the global nuclear "value chain." They include Constellation Energy, Vistra, Public Service Enterprise and Curtiss-Wright. Also, CGN Power H-shares, China; CGN Mining, Hong Kong; Paladin Energy, Australia; and Kansai Electric Power, Japan.
Taiwan Semi Beats June Sales Goal On AI Boost
The interest in nuclear power is a boon for a U.S. industry that for decades saw flat energy generation. A double-digit number of plants were poised to shut down as solar, wind and natural gas dominated the energy discussion.
The industry also carries baggage. Three Mile Island, Chernobyl and Fukushima still loom large in the minds of utilities and their insurers. And long-term safety and environmental concerns over storing and disposing of radioactive spent fuel rods create resistance to new nuclear development.
Federal rules call for all nuclear facilities to store their spent, radioactive fuel rods on site. This is typically done in indoor steel-lined, concrete pools. In cases where spent rods are stored in dry canisters, the Nuclear Regulatory Commission requires constant monitoring, and re-licensing every 20 years.
Nuclear Energy Resistance Meets Artificial Intelligence Zeal
Still, the AI boom appears to be brushing at least some of that resistance aside. Craig Piercy, chief executive for the American Nuclear Society, said in an interview that the nuclear industry did not realize the potential energy demand for artificial intelligence and data centers until six to nine months ago.
"It's put a lot of wind in the nuclear industry's sails," Piercy said.
Enverus analyst Carson Kearl told IBD that part of the reason for the nuclear renaissance is that people who are bullish on technology "tend to be optimistic about nuclear."
"Large tech companies, being very optimistic about technology, are financially able and willing to invest in nuclear," he said.
Kearl notes that the cost of a nuclear power plant to a utility is substantial. But for a company like Google, "It's a drop in the bucket compared to their data center expenses."
"The scale of investment in nuclear technology is larger than ever," he said.
Fuel For Nuclear Power
Fuel is an issue that new plants will need to solve, though. Uranium spot prices are forecast to climb 45% to $84.56 per pound in 2024, according to FactSet. The analyst consensus has average uranium prices at $88.75 per pound in 2025 before declining to $71 per pound in 2028. Uranium averaged just $25.87 per pound in 2019.
Piercy says Congress has effectively prohibited Russian uranium imports. That means the U.S. will need "more domestic enrichment capacity in this country."
Russia has historically provided around 20% of the U.S. enriched uranium supply, according to Piercy.
"We're in a transition period away from a time where we ignored the national security aspects of nuclear fuel supply and really just kind of focused on free markets or global markets," he said.
"You can't have a growth in new nuclear without a growth in uranium supply," Piercy added.
DeWitte told IBD that fuel is one of the major limitations to Oklo's growth rate.
"Right now, enriched uranium to be used in reactors is in short supply for everybody, not just advanced reactors, for everybody, especially with the Russian ban," Oklo CEO DeWitte said.
AWS And Constellation In Discussions?
Meanwhile, AWS is nearing a deal with Constellation Energy for power supplied directly from a nuclear plant on the East Coast, according to the Wall Street Journal. In an interview with IBD, Constellation Energy Chief Financial Officer Daniel Eggers would not comment about the potential deal.
"We are having, as probably many are, meaningful conversations with large players in the technology industry who all want to move forward with AI and the data center needs associated with them," Eggers said.
"There's a clear understanding that the need for speed to market is a real consideration — to keep the technological advantage here in the United States," he said.
Vistra has also been in reported discussions for deals at both nuclear and natural gas-power plants. But Wood Mackenzie's Hertz-Shargel cautioned that announcements may not equate to building projects.
"We always remind people that we are in a supply-constrained environment in the U.S., so it will be limited by how much grid capacity and generation capacity exists that can accommodate this kind of growth," he said.
Constellation Energy Forecasts
To keep things real, CFO Eggers told IBD that analysts could be overshooting Constellation Energy's demand growth as a result of artificial intelligence and data centers.
"When we see some of the discussion out there of how big this is or how fast it is (growing), I think we have to take a bit of a measured view on how fast this is all coming," he said.
He suspects a fair amount of double counting, "or even more than double counting that you're seeing in those numbers."
Eggers points out that Constellation Energy has excess reserves and room to absorb more demand growth. The company is looking to add around 1,000 megawatts of capacity, according to Eggers.
AI Vs. Carbon Emission Goals
Clean air goals play into the nuclear trend. Nucor, Microsoft and Google in March announced the Advanced Clean Electricity request for information, or RFI. The initiative targets development of reliable, low- or zero-carbon electricity generation technologies, including advanced nuclear.
The partners are all looking to be carbon-emissions-free by 2050. But Google, aiming for net-zero emissions from company operations by 2030, has hit a snag. The tech giant reported this month in its 2024 environmental report that its greenhouse-gas emissions rose 13% last year. They reached 14.3 million metric tons, which was up 48% from 2019. The company blamed energy used at its data centers.
"Reducing emissions may be challenging due to increasing energy demands from the greater intensity of AI compute," Google says in the report.
Microsoft looks to be "carbon negative, water positive and zero waste" by 2030. It also plans to match 100% of its electricity generation with zero-emissions sources by 2030. But in May, Microsoft said carbon emissions increased 30% from 2020 levels, also due to its ramp-up of artificial intelligence.
Steel producer Nucor also aims to be carbon-emission-free by 2050. Like its Big Tech partners, Nucor is looking to nuclear. It has a $15 million strategic investment in NuScale Power, which designs and small modular reactors.
More Than Nuclear Power For AI Data Centers
Nuclear is just one technology looking to capitalize on the artificial intelligence boom. Data center demand has natural gas producers, hydrogen plays and solar power operations all jockeying for deals.
Enverus estimates that natural gas might add 40 gigawatts of generating capacity over the next decade. Enverus analyst Kearl notes that solar energy is moving much faster. It's expected to add 30 to 40 gigawatts of capacity each year for the next decade.
Yet analysts say gas-fired generators are the likely path if the U.S. needs a lot more power quickly.
"It's much harder to scale down and ramp up a nuclear power plant or a coal power plant," Kearl said.
Nuclear Is One Part Of The Discussion
Energy suppliers are also looking to offer data centers "bridge power solutions." This tends to be an option offered by natural gas and fuel cell developers to data centers that can't connect to the grid on an acceptable timeline. The data centers would get an on-site or nearby generation facility for two to three years. This allows them to operate quickly and not wait for the grid.
Feasel, of FuelCell Energy, said data centers have been the company's "largest growth of inbound opportunity over the last year." He expects that trend to continue. Some companies are willing to pay a premium for environmentally responsible energy sources, he says.
"When you think about the hyperscalers, they have very specific sustainability goals and targets, and they have their own zero-carbon targets. So that's a really important part of the mix for them," Porter said.
Porter adds, though, that he sees all the energy sources playing a major role to meet the needs of the grid.
"Optionality is the best way to go forward for the grid, and it's a combination of all those things," he said. "But what really needs to grow is that firm, dispatchable, clean energy," he added. "You know, nuclear fits into that bucket."
U.S. Electrical Production Trend
Since the late 2000s, U.S. electrical production has been largely flat. In 2023, about 60% of electricity was from fossil fuels — 43% from natural gas and 16% from coal. Renewable energy made up 21%. Nuclear power totaled just under 19%, according to the Energy Information Administration.
That is a significant shift from 1994, when natural gas was 13%, coal 52% and nuclear plants 20% of total U.S. electricity.
Electricity generation from zero-carbon sources such as wind and solar has ramped up in recent years. In 2022, U.S. energy consumption from renewable sources surpassed that from nuclear for the first time since 1984. U.S. nuclear energy generation began in the late 1950s and has remained fairly constant since the early 2000s.
But by all accounts that flat line is about to change.
Can The Electric Grid Hold The Load?
Already, increased power use in the U.S. is delaying coal and natural gas plant closures. That puts pressure on federal carbon-cutting efforts, according to Wood Mackenzie's Hertz-Shargel.
In Northeastern states, the regional transmission organization, PJM, expects data centers to increasingly drive electricity demand. PJM forecasts a rise in summer peak load from 151 gigawatts in 2024 to 178 gigawatts by 2034.
"The grid is not prepared," Hertz-Shargel said.
He says the U.S. needs more transmission infrastructure, which usually takes about a decade to complete.
"We're in this very ironic state where we have too much demand and we have too much supply, and it's the grid that is insufficient to allow our too much demand to meet with our too much supply," he said.
Kearl, the Enverus analyst, told IBD the U.S. grid is possibly ready to start making changes to support the increase in demand amid expanding use of artificial intelligence. But the timeline will be hampered by "current infrastructure build-out challenges."
"Expect lower reliability and higher costs for consumers, while energy producers might make more money on the supply side by producing less energy but being paid to exist," he said.
Please follow Kit Norton on X @KitNorton for more coverage.
YOU MAY ALSO LIKE:
Is Tesla Stock A Buy Or A Sell?
Get Full Access To IBD Stock Lists And Ratings
Learning How To Pick Great Stocks? Read Investor's Corner
Is Rivian A Buy Right Now After It Launched Its New Product Line?
Market Powers Up On Rate-Cut Hopes; Two Risks Could Be Toxic Mix
