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Uranium and Utilities Stocks Set to Surge as Tech Giants Shift to Nuclear Energy

Mike Cianciabella | October 16, 2024

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Uranium and Utilities Stocks Set to Soar as Tech Giants Embrace Nuclear Energy

Introduction

The world is witnessing a paradigm shift as tech giants like Microsoft, Google, and Apple pivot toward nuclear energy to power their growing electricity demands, particularly in the realm of artificial intelligence (AI). As an investor who has long advocated for nuclear energy, this is a pivotal moment. Despite uranium and its related stocks seeing a remarkable price increase of 400%-500% since my last exploration of the sector in 2017—compared to a mere 150% rise in the S&P 500—I firmly believe that there remains significant potential for further growth in nuclear energy.

Microsoft’s Bold Move into Nuclear Energy

In a surprising move, Microsoft signed a deal in September 2023 with Constellation Energy to restart the Crane Clean Energy Center nuclear plant in Pennsylvania, formerly known as Three Mile Island. The new energy source is expected to come online by 2028, reflecting an ambitious step to meet soaring data center power demands. According to Morgan Stanley analyst David Arcaro, Microsoft is paying more than double the prevailing market rates for this energy—averaging around $100 per megawatt hour (MWh) compared to the current market price of about $50 per MWh. Including transmission costs, Microsoft’s expense could soar to as high as $130 per MWh.

This deal underscores the aggressive energy consumption needs of tech giants as they strive to secure reliable power sources to support their burgeoning AI initiatives and climate objectives. As highlighted by Matt DiLallo from the Motley Fool, Microsoft’s prioritization of energy procurement is a necessary response to their growth ambitions.

Drivers of Nuclear Energy Demand

As the demand for nuclear energy intensifies, several key drivers are at play over the next decade:

1. Increasing Energy Demand

Tech giants, including Microsoft, Alphabet, and Apple, are increasingly reliant on energy to support the vast power needs of their AI-driven data centers. A report by the Boston Consulting Group predicts that demand from data centers will increase by 15%-20% annually, potentially comprising 16% of U.S. energy demand by 2030. In addition to tech, there are also growth prospects from reshoring and domestic production initiatives for chips, electric vehicles, batteries, and solar energy.

2. Geopolitical Risks

The ongoing geopolitical conflict of Russia-Ukraine has highlighted vulnerabilities in energy security, prompting a revival of interest in nuclear power. Experts like John Ciampaglia, CEO of Sprott Asset Management, indicate that this crisis has catalyzed Western nations to bolster their nuclear capabilities in efforts to mitigate energy supply risks.

3. Decarbonization and Climate Change

As the world grapples with climate change, nuclear energy is increasingly seen as a viable solution for achieving carbon neutrality. Tim Gitzel, CEO of uranium producer Cameco, emphasized the robust support for nuclear energy across governments and industries, suggesting a sustainable demand surge unlike any witnessed previously.

Key Investment Opportunities in Nuclear Energy

Given these developments, here are some promising avenues for investment in the nuclear sector:

Nuclear-Powered Utilities

Morgan Stanley analyst Arcano suggests that Microsoft’s deal is a testament to the value of nuclear power for large data center operators. He has revised his price targets upward for three unregulated nuclear-power utilities—Constellation, Vistra (VST), and the Public Service Enterprise Group (PEG). He increased Constellation’s price target dramatically from $233 to $313, citing significant upward revisions based on the Microsoft deal.

Infrastructure Investments

While some analysts remain skeptical about growth prospects for unregulated utilities, they do see beneficial prospects for regulated utilities that can increase rates to cover rising demand. Analysts suggest investing in regulated utilities like NiSource (NI), WEC Energy Group (WEC), and Duke Energy (DUK), which are well-positioned to capitalize on surging energy requirements.

Uranium Stocks and Miners

As nuclear energy demand continues to rise, investors should consider the current supply challenges. Sprott’s Ciampaglia notes that Kazakhstan, which historically supplied 39% of global uranium production, has faced disruptions. This supply lag against increasing demand suggests potential for price increases, benefitting stocks such as Cameco and investment vehicles like the Sprott Uranium Miners ETF (URNM) and Sprott Junior Uranium Miners ETF (URNJ).

Conclusion

The shift towards nuclear energy represents a monumental opportunity for investors amidst a rapidly evolving energy landscape. The burgeoning demand from tech giants, geopolitical imperatives, and public commitments to decarbonization create a multifaceted growth narrative for nuclear energy—and the uranium stocks tied to it—over the coming years. With the right strategic investments, there lies great potential for financial gains as this nuclear renaissance unfolds.