As major American tech companies sign nuclear power agreements to meet the electricity demands of artificial intelligence, the nuclear energy sector is once again coming into investors' sights, and analysts are beginning to look forward to an optimistic outlook for the industry.
Is nuclear power making a comeback?
Nuclear power plants continue to reopen, but the first question the market encounters is whether the global supply can meet the growing demand for clean energy. On October 1st, Aniket Shah, Global Head of Sustainable and Transformational Strategies at Jefferies, discussed his stance on the resurgence of nuclear power in the AI boom during an interview.
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Shah shared that the nuclear power boom is not surprising. Looking back, the United States signed significant partnerships years ago to increase nuclear power supply, indicating that the value of the industry was neither unknown nor a recent discovery.
He added that large tech companies will be the main catalysts and will affect the entire market. These companies will invest millions to billions of dollars in the nuclear energy sector, making it easier for other companies to follow suit. Shah stated that some key investment areas will be small modular reactors (SMRs) and nuclear fusion.
It is understood that recently Google (GOOGL.US) announced that it will purchase electricity from a series of small nuclear reactors produced by the nuclear startup Kairos Power. At the same time, other tech giants, including Microsoft Corporation (MSFT.US) and Amazon.com, Inc. (AMZN.US), have placed their bets on nuclear power. Microsoft has agreed to purchase electricity from the closed Three Mile Island nuclear power plant in Pennsylvania, and Amazon recently purchased a nuclear-powered data center in Pennsylvania.
Shah also acknowledged that the bipartisan view in the United States on nuclear power prosperity is consistent, which explains why regulations and bills favorable to nuclear power can be passed quickly. However, although the infrastructure for nuclear power is being assembled, Shah remains concerned about the execution. He emphasized that the United States does not have enough skilled labor and resources to make the nuclear power boom a reality and must work very hard to achieve this goal.
Nuclear power is expected to grow in the AI boom
One of the most opportunistic investment themes for 2024 is artificial intelligence, and the other is electrification, both of which require a large amount of electricity. The surge in electricity demand, in turn, drives the rise of utility stocks. On October 4th, Durgesh Chopra, Managing Director of Evercore ISI, discussed in an interview how utility companies can benefit from AI-driven electricity demand.
Chopra emphasized that the biggest catalyst for companies like Vistra Energy (VST.US) and Constellation Energy (CEG.US) is the demand for around-the-clock clean energy from data centers. Therefore, nuclear power enterprises must seize the opportunity to sign long-term contracts as soon as possible to lock in future growth.Currently, there are multiple projects underway in the United States, totaling approximately 1.5 GW of energy, positioning nuclear power plants as the next big thing in the energy sector. On the other hand, balancing supply and demand will be a key challenge for companies.
Despite facing numerous challenges, Chopra believes that the utility market is ready for growth. The utility sector has not seen demand growth in the past decade, but the situation in the industry has finally changed. Overall, the industry may be in for a significant boon as inflation rates decline. Chopra also emphasized that growth in the industry will yield results within five to seven years.