Nuclear energy stocks have become a Wall Street darling this year as the artificial intelligence (AI) boom spreads, leading to Big Tech searching for ways to meet its growing power demand.
It should not come as a great shock then that AI helped power the S&P 500 Utilities index to all-time highs. This index is on track to outperform the S&P 500 equal-weighted index in 7 of the past 10 months, according to data compiled by Bloomberg.
In addition, Vistra (VST), a nuclear power-related utility, recently surpassed Nvidia (NVDA) as the biggest gainer in the S&P 500 Index ($SPX) year to date.
Nuclear Decision
However, a Nov. 1 Federal Energy Regulatory Commission (FERC) decision sent nuclear stocks reeling.
It rejected a deal that would have allowed an Amazon.com (AMZN) data center to use more power from an adjacent nuclear power plant - the Susquehanna nuclear facility owned by Talen Energy (TLN). FERC cited concerns about grid reliability and energy affordability.
Amazon paid Talen $650 million for a data center facility adjacent to the nuclear plant, aiming to take the reactor’s output directly. By doing this, Amazon would have avoided paying for transmission services.
If a data center is “behind the meter,” you aren’t relying on the grid and needn’t pay for it. Two grid operators, among others, didn’t like this special deal and brought the dispute before FERC. The ruling doesn’t prevent the initial 300 megawatt deal between Amazon and Talen from going ahead, but blocks its expansion.
And many copycat deals Big Tech had planned are dead.
What's Next for Nuclear?
However, once the shockwave passes, two realities will still be with us. First, Big Tech data center builders still want massive power supplies secured sooner rather than later. Second, they can afford to, and are willing to, pay a premium for power.
As long as the market’s main assumption is valid — that we are in the very early innings of an artificial intelligence-inspired data center boom — the companies that produce and deliver the power will still benefit quite a bit.Instead of the type of power deal that Amazon sought, more deals will be structured similar to the pact between Microsoft (MSFT) and Constellation Energy (CEG). That’s the deal that is leading to the restarting of the Unit 1 reactor at Three Mile Island.
Microsoft’s data center will not be co-located with Three Mile Island. Instead, Microsoft will buy power from the grid at prevailing rates and pay the difference to Constellation — plus, Microsoft would have to pay the grid fees that Amazon hoped to avoid. Analysts estimated Microsoft will be paying Constellation about $100 per megawatt-hour, with transmission fees of about $30 on top of that.
In other words, Big Tech will pay up - a lot - for power. The apparent comfort with paying $100 or more in a $50 wholesale electricity market suggests generators could even offer a discount to cover transmission fees, etc. and still make large profits.
Thanks to artificial intelligence, digitalization and massive data-storage needs, data center power demand will nearly triple (surging 160%) by 2030. Those massive processing operations currently consume 1% to 2% of all power — but could account for 3% to 4% of electricity production by the end of the decade, says Goldman Sachs Research. S&P Global says that share could rise as high as 9%. And consultant McKinsey & Co. says it could hit 11% to 12% of power demand!
Apollo Global Management chief economist Torsten Sløk recently put into context the amount of power the AI boom is going to require. His data shows that we would have to add three New York Cities' worth of power to the grid by 2030 to meet the demand that is going to come from artificial intelligence.
That’s a lot of power!
Overall, here in the U.S., data needs on top of electrification of transport and a manufacturing revival sparked by “reshoring” efforts are forecast to at least double electricity demand growth in the next decade compared with the prior one.
Even the International Energy Agency (IEA) recently declared that, after the age of coal, and the age of oil, the world is now entering the age of electricity.
Nuclear Power Investments
Big Tech companies see nuclear power as a way to meet the demand for the power they need.
A great way to play the renaissance in nuclear power is through an exchange-traded fund (ETF) - the Range Nuclear Renaissance Index ETF (NUKZ), with a portfolio of 38 stocks.
I like the fact that the fund is spread broadly across all the nuclear-related segments. Among its top portfolio positions are: Constellation Energy (CEG), the largest nuclear operator, with more than three times more megawatt capacity than the next competitor; and Cameco (CCJ), which has controlling ownership of the world’s largest high-grade reserves and low-cost operations, as well as significant investments across the nuclear fuel cycle, including ownership interests in Westinghouse Electric Company and Global Laser Enrichment.
NUKZ also has a major position in GE Vernova (GEV), which is heavily involved in the electric grid. I wrote about GEV previously as the best stock to buy in the Age of Electricity.
The fund also includes a number of companies involved with SMRs (small modular nuclear reactors), such as Oklo (OKLO), NuScale Power (SMR), and Rolls Royce (RYCEY).
Finally, the ETF holds a number of engineering firms with exposure to the nuclear industry.
NUKZ began trading in January at $25, and is now trading around $45 - a nearly 80% gain! There’s plenty more to come. Buy NUKZ anywhere below $50.
