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Uranium and Nuclear Stocks Surge on Constellation-Microsoft Deal. Who's Leading the Way?

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Analysts Notebook wrote a column · Sep 23 06:25
Last Friday, $Constellation Energy (CEG.US)$, the largest clean, carbon-free energy producer in the United States, announced the signing of its largest power purchase agreement to date with $Microsoft (MSFT.US)$. This deal will lead to the restart of the Three Mile Island Unit 1, which was shut down five years ago due to economic reasons, and will keep it operational for decades, adding approximately 835 megawatts of carbon-free energy to the grid. Under the agreement, Microsoft will purchase energy from the reopened power plant over the next 20 years to support its data centers in PJM with carbon-free energy.
This move underscores the significant demand for nuclear energy from tech giants in the AI era. Following the announcement, Constellation's stock soared by 22% last Friday, pushing its year-to-date gains over 119%, while other uranium and nuclear stocks also experienced a varied uptick.
Uranium and Nuclear Stocks Surge on Constellation-Microsoft Deal. Who's Leading the Way?
“The decision here is the most powerful symbol of the rebirth of nuclear power as a clean and reliable energy resource,” Constellation CEO Joe Dominguez said Friday.
Clean, Uninterrupted Supplies Position Nuclear Energy as a Prime Beneficiary of AI
As technology giants increase capital expenditures to maintain a strong position in the arms race of artificial intelligence, the massive power demand behind data centers is putting pressure on the power grid. Goldman Sachs predicts that by 2030, the proportion of electricity consumption from data centers in the United States will increase from the current 3% to 8%. Additionally, the electrification processes of electric vehicles and manufacturing industries, along with cryptocurrency mining, are also contributing to the growing electricity demand. The International Energy Agency (IEA) forecasts that electricity consumption from data centers, artificial intelligence (AI), and the cryptocurrency sector could double by 2026.
Compared to the fluctuation of wind and solar energy, the round-the-clock operation of nuclear power makes it an ideal choice for energy supply in the AI era. This also explains why AI giants have been accelerating their deployment in nuclear power in recent years. In March this year, Amazon Web Services invested $650 million to acquire a nuclear-powered data center campus near a nuclear power plant from Talen Energy in Pennsylvania. Oracle announced in September that they are designing a data center requiring over 1 gigawatt of power to be powered by three small nuclear reactors. In addition, backed by Sam Altman, nuclear energy startup Oklo, which went public in May, is expected to launch its first reactor by 2027.
According to the latest data released by the World Nuclear Association on September 20, 2023, global nuclear power generation reached 2,602 TWh, accounting for 9% of the overall energy supply. The United States generated 779.2 TWh of nuclear power, approximately 18.6% of the total electricity generation in the country.
Source: World Nuclear Association
Source: World Nuclear Association
Despite the gradual phase-out or early retirement of aging nuclear power plants in some countries, IEA predicts that by 2026, annual nuclear power generation will increase by nearly 3% on average. This growth is driven by the strengthening momentum for Small Modular Reactor (SMR) technology, the completion of maintenance work in France, the restart of nuclear production at several power plants in Japan, and the commencement of commercial operations for new reactors in various markets, including China, India, South Korea, and Europe. At the COP28 climate change conference that concluded in December 2023, 20 countries, including the United States, signed a joint declaration to triple nuclear power capacity by 2050. By then, the number of operational nuclear power plants globally could expand from the current 439 to over 1000, indicating a promising growth outlook for the nuclear energy sector.
Source: IEA
Source: IEA
Uranium is the primary fuel for nuclear power plants, with Russia controlling nearly half of the world's enriched uranium supply and providing about a quarter of the enriched uranium to the United States. News of a ban on Russian enriched uranium imports and other supply shortages had previously driven uranium prices significantly higher, breaking $100 USD/Lbs earlier this year. As investors continue to assess the US ability to produce enriched uranium and reduce supply concerns, the price of uranium has now fallen to around $80 USD/Lbs. However, looking at the demand side, data from the World Nuclear Association shows that global uranium demand in 2024 is projected to be 67,517 tonnes U, with the United States and China having the largest demand at 18,137 tonnes U and 13,132 tonnes U respectively, highlighting a significant supply-demand gap in the uranium market.
Source: World Nuclear Association
Source: World Nuclear Association
Key Nuclear Energy Stocks to Watch
$Constellation Energy (CEG.US)$, with nearly 90% of its power generation portfolio consisting of carbon-free sources, attracted attention by restarting a nuclear power plant, leading the sector with a strong 22% surge last Friday. The company raised its earnings per share guidance for FY24 from a range of $7.23-$8.03 to $7.60-$8.40 when the Q2 financial report was released, with the midpoint above the market expectation of $7.81. Barclays initiated coverage on the company in August, optimistic about its bullish catalyst path ahead, while a report from Argus in September expressed support but flagged the stock's "high multiples" from a valuation perspective. It is worth noting that substantial capital will be invested in the nuclear reactor restart action, and crucial regulatory permits for the plant's new operation are yet to be submitted.
$Centrus Energy (LEU.US)$ is a provider of nuclear fuel and services to the commercial nuclear power industry. The company produces enriched uranium for commercial and government purposes and sells separate work units (SWU) components, SWU and natural uranium components for utilities operating nuclear power plants through its Low Enriched Uranium (LEU) segment.
$Cameco (CCJ.US)$, one of the largest uranium mining companies globally and the second-largest uranium producer, controls approximately 18% of the global output through its mines in the United States and Canada. The company's operations are divided into uranium mining and fuel services segments, offering a range of services from uranium exploration and mining to nuclear fuel processing.
$Energy Fuels (UUUU.US)$ focuses on the extraction, recovery, and sale of uranium and vanadium metals, including in-situ recovery (ISR) uranium and conventional uranium mining, as well as vanadium production. The company owns several uranium and vanadium mining assets in the United States, including the Nichols Ranch uranium recovery facility in Wyoming and the White Mesa Mill in Utah.
$Denison Mines (DNN.US)$ is a Canadian uranium exploration and development company, with assets primarily concentrated in the Athabasca Basin region in northern Saskatchewan. The company's key assets include the Wheeler River project and interests in the McClean Lake uranium mill. Denison Mines also provides mine closure services and consulting for new mining projects.
$NexGen Energy (NXE.US)$ is renowned for its high-grade uranium deposits and holds multiple uranium projects in Canada, including the high-grade Arrow uranium deposit. The company focuses on uranium exploration and development.
$Uranium Energy (UEC.US)$ specializes in uranium mining and related activities as a pure-play uranium company, advancing its next-generation, low-cost, environmentally friendly in-situ recovery (ISR) uranium mining projects. The company has two production-ready ISR hubs and a processing plant in South Texas and Wyoming, with additional diversified uranium assets in the United States, Canada, and Paraguay.
Source: World Nuclear Association, IEA, the Fly, Constellation Energy
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