Nuclear Stocks Go Nuclear as AI Data Centers Power Up

In Ernest Hemingway’s book The Sun Also Rises, one character asks, “How did you go bankrupt?” The other responds, “Two ways. Gradually, then suddenly.”

It’s one of my favorite all-time quotes. This week, we saw an example of this, but in the opposite direction. If you ask someone who was invested in nuclear stocks, “How did you get rich?”, the response might well be, “Two ways. Gradually, then suddenly… this week.”

It was only on Oct. 1 that I recommended Centrus Energy (LEU) as a stock to buy, because nuclear fuel prices are surging. Centrus is the only publicly traded company addressing nuclear fuel enrichment in the world. It is also the only company in the U.S. with NRC (Nuclear Regulatory Commission) license for HALEU (high-assay low-enriched uranium) production to supply commercial and national security needs.

At that time, LEU stock was trading below $60. Now, it is trading around $99, and peaked above $100 earlier today. 

Let me fill you in on what has happened in the nuclear world since the start of October…

Big Tech, AI, and Nuclear Power

Nuclear power has long been on the decline, its share of the world’s electricity generation halving from 18% in the mid-1990s to 9% today. But now, there are signs of a revival, thanks to the artificial intelligence (AI) boom.

In a deal struck what now seems like ages ago (September 2024), Constellation Energy (CEG) announced plans to restart Unit 1 (which was shut down in 2019) at Three Mile Island, after Microsoft (MSFT) signed a 20-year deal to buy power from the utility.

Then, on Oct. 14, Alphabet's (GOOG) Google ordered six to seven small modular nuclear reactors (SMRs) from privately held Kairos Power. It became the first tech company to commission new nuclear power plants to provide low-carbon electricity for its energy-hungry data centers.

Kairos said that Google had placed an order for SMRs with a total capacity of 500 megawatts (MW). This will help Kairos, a seven-year-old start-up, to bring its first commercial reactor online by 2030 and additional reactors by 2035.

Kairos has developed a reactor cooled by molten fluoride salt, rather than water. In December, it received a construction permit from the NRC to build a 50MW demonstration reactor in Tennessee called Hermes.

This was the first approval for a new type of reactor in the U.S. for half a century. The U.S. Department of Energy is investing about $300 million in Kairos’s Hermes project through its Advanced Reactor Demonstration program. Its molten salt reactor uses ceramic-coated TRISO fuel and operates at close to atmospheric pressure, transferring heat from the salt to generate steam and run a turbine.

And on Oct. 16, Amazon (AMZN) announced it is buying a stake in U.S. nuclear developer X-energy, as part of a collaboration with the company aimed at deploying small modular reactors to provide low-carbon electricity to power its data centers.

X-energy said that Amazon had agreed to anchor a $500 million fundraising, which would help the company finance the development and licensing of its new generation of SMRs, which it said are more efficient than large-scale nuclear reactors. Ken Griffin, founder and chief executive of Citadel, as well as Ares Management, private equity firm NGP, and the University of Michigan, also participated in X-energy’s fundraising.

X-energy, which is backed by chemical giant Dow (DOW), has developed a reactor that uses helium gas as a coolant rather than water to divert heat from the core. Each of its Xe-100 SMRs generates 80MW, and they can be scaled into “four pack” 320MW power plants, which is similar to the output from a typical gas power plant.

The first Xe-100 SMR is being developed at a Dow manufacturing site on the Texas Gulf Coast, with financial support from the U.S. government. Amazon and X-energy plan to bring more than 5GW (gigawatts) of SMR-generated power online by 2039.

Tech companies believe SMRs offer a simplified, inherently safe design, faster construction, and flexibility on deployment location, compared with large-scale nuclear plants. And they say nuclear power is key to around-the-clock clean energy.

Unlike traditional nuclear reactors, which are enormous facilities that take years to build, SMRs can be built at factories, delivered by truck or train, and then assembled on-site, saving time and money. Utilities can install just one or bundle several together, expanding the potential market by including regions that don’t need a big conventional nuclear plant.

The Power is Needed

There is little doubt - if AI demand forecasts are to be believed - that the need for more power (and lots of it) is there.

Data center expansion and other factors are expected to drive electricity demand up 15% to 20% over the next decade, according to the U.S. Energy Department. Data centers could consume as much as 9% of the nation’s electricity generation annually by 2030, up from 4% in 2023, according to a report in May by the nonprofit Electric Power Research Institute.

In the first half of 2024, new data centers totaling nearly 24GW were announced by companies, more than triple the same period last year and already exceeding the entirety of 2023, according to a new report from the energy consultancy Wood Mackenzie.

Spending on data center construction at Amazon, Meta (META), Google, and Microsoft is expected to reach $178 billion in 2025, up 11% year over year. 

Data centers are also getting bigger. Since January 2023, the capacity of announced data centers has grown an average of 8MW per month, according to Wood Mackenzie. No wonder, according to Wood Mackenzie, that U.S. utilities face a backlog of more than 100GW of data center capacity just waiting to connect to the grid.

Buy LEU Stock

The premium prices that tech companies are willing to pay will likely trigger a wave of investment in new nuclear plants. We’re seeing price points in the market that will validate new manufacturing, including SMRs.

You have government commitments to invest in new nuclear, you have financial commitments from tech firms to support it, and we know the demand picture is there. Those are the commitments you need to greenlight new nuclear capacity in the U.S. For the first time in a very long time, we’re seeing all those components together.

That’s why I like the industry over the long-term, and Centrus Energy (LEU) remains my favorite nuclear stock.

The price of fuel for nuclear reactors has gone up much faster than that of raw uranium since the start of 2022, as bottlenecks have built up following Russia’s invasion of Ukraine. Uranium 
hexafluoride has jumped fourfold in price to $68 per kilogram (kgs) since the start of 2022. Uranium ore has only doubled in price.

Russia plays a major role in the multi-stage process of turning mined uranium into the fuel for a nuclear reactor. Russia controls 22% of global uranium conversion capacity, and 44% of enrichment capacity.

So far, none of the existing nuclear fuel companies in the West - such as France’s Orano and British-Dutch-German owned Urenco - has committed to building new conversion capacity.

That’s where Centrus comes in. It’s kick-starting HALEU production in the U.S., and began producing HALEU from a demonstration plant in Piketon, Ohio, last year.

Restoring America’s capability to enrich uranium with domestic technology is critical to meeting long-term national security requirements, so government support will continue. Add in its deep technical expertise and capabilities, and Centrus Energy is well-positioned to grow with the nuclear industry.

LEU remains a buy on any pullback, which is inevitable due to its massive run-up in price recently.

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