Is nuclear power the next big thing?

Most recent movements indicate a notable shift concerning nuclear energy stocks.

Companies engaged in the uranium and nuclear sectors have experienced significant increases in their share prices, largely fueled by innovative agreements with prominent tech firms.

Major corporations like Microsoft, Amazon, and Google are competing to establish data centers to accommodate an unprecedented energy demand. A recent report from the Electric Power Research Institute (EPRI) indicates that data centers could account for as much as 9% of the United States' electricity consumption by 2030, more than double of the current usage. Such evidence poses critical inquiries regarding how such needs can be satisfied in a reliable and sustainable manner.

As the AI revolution propels a dramatic increase in electricity demand, nuclear power is poised to play a pivotal role in the energy landscape for the foreseeable future.

The United States currently operates the largest nuclear fleet globally, comprising 94 reactors; however, this capacity will not suffice. Collectively, projections for 2025 suggest a record level of nuclear generation, with over half of this output anticipated to originate from China and India, as reported by the International Energy Agency (IEA).

We are facing a major development that cannot be interpreted as a transient market fluctuation; it signifies a broader trend with substantial implications for investors.

In recent years, nuclear power has re-emerged as a "cleaner" and more efficient energy alternative, boasting a higher capacity factor than "intermittent" renewable sources such as wind and solar energy. Nuclear energy provides consistent, clean power around the clock, positioning it as a viable solution to meet the substantial energy requirements of AI-driven data centers.

Exchange-traded funds focused on uranium mining and nuclear energy stocks have experienced significant growth in October. Notable examples include the VanEck Uranium and Nuclear ETF and the Global X Uranium ETF, which may yield surprising results.

Although uranium prices have moderated this year following a sharp increase in early February, when they reached their highest point since 2007, it is important to note that uranium constitutes only a minor fraction of the overall operational costs of a nuclear power plant. The expense associated with nuclear fuel accounts for approximately 5% to 10% of the total reactor costs throughout its operational life. Therefore, even if uranium prices were to double, companies would not be compelled to abandon nuclear energy in favor of alternative energy sources.

ETFs related to nuclear power may offer a more holistic exposure to the entire nuclear energy landscape while mitigating risks associated with high-beta, cyclical uranium stocks.

The risks linked to trading and investing have escalated in recent years due to extraordinary events such as the COVID-19 pandemic, the invasion of Ukraine, and the recent intensification of conflicts in the Middle East. Nevertheless, the strong connection between nuclear energy and the growing demand requires thorough analysis by investors as a persuasive narrative of structural growth is emerging within this sector.