The artificial intelligence (AI) megatrend has ramifications that spread throughout the economy. A hot topic lately has been the increased demand for data centers that require huge amounts of electricity.
Rene Haas – the CEO of major AI semiconductor player Arm Holdings (ARM) – has said that he believes data centers could account for 25% of U.S. electricity usage by 2030. And the International Energy Agency sees electricity demand from worldwide data centers growing 10X over the same period.
How will the world, specifically the U.S., keep up with electricity demand?
The progressive left will suggest meeting the demand with renewables such as solar and wind.
The conservative right will advocate for more oil and gas from right here in the U.S. to power the booming trend.
Both sides have solid arguments, and they are also flawed and narrow-minded.
On the left, there is not enough renewable energy to meet increased electricity demand and the country’s electrical grid cannot handle new projects.
On the other side, the idea of just turning on the spigots for more oil and gas to meet electricity demand is more viable, especially since the U.S. is the new king of fossil fuels. Realistically, I do not see that being a long-term solution due to political pressure.
So, what is the answer?
It will likely anger the progressive left, but in my opinion, it is the best option…. by far!!
I’m talking about nuclear energy.
One of the richest men in the world, who has been a major proponent of spending on renewable energy, has made a billion-dollar bet on nuclear. Love him or hate him, Bill Gates, the founder of Microsoft (MSFT) has been successful in the business world.
The billionaire invested $1 billion into TerraPower, a nuclear power start-up focusing on smaller reactors that use sodium in the cooling process. This week, it was announced that the company began construction on a $4 billion nuclear plant in Wyoming. The project has yet to receive full approval from the Nuclear Regulatory Commission (NRC), but as you can imagine, Gates may have some sway into a positive decision from the commission.
TerraPower is not publicly traded. However, there are a few companies in the public markets that also focus on the next phase of nuclear reactors, referred to as small modular reactors (SMR).
The only company to have received a design approval from the NRC is NuScale Power (SMR). The $840 million company went public in 2022 via a special purpose acquisition company (SPAC) and after an initial rally, the stock struggled until finding a bottom in January. Since then, the stock is up nearly 5X and is part of a trio of small-cap SMR stocks that are starting to catch the eye of investors.
Another SMR company that also went public via a SPAC is Oklo (OKLO). The company went public earlier this year and has been on a wild ride with shares trading between the $7 and $19 range. One of the investors in the company is the co-founder of OpenAI (owner of ChatGPT), Sam Altman. This is another example of extremely wealthy individuals who have been at the forefront of success in the past, pumping money into the niche sector.
A third SMR company began trading on the Nasdaq in May – Nano Nuclear Energy (NNE). The $335 million company is likely the riskiest of the three at this time, but the stock price has been surging – from a low of $3.25 in May to above $13 earlier this week.
All three publicly traded SMR companies are facing uphill battles due to regulatory issues, costs, and public opinion. The one tailwind they have is that large tech firms need energy for their data centers and SMRs could be a great option.
This year alone, Amazon (AMZN), Alphabet (GOOGL), Microsoft, and Meta (META) are expected to spend $200 billion on cloud and AI investments – including data centers.
There have been deals that prove the big tech companies are open to and need nuclear energy. Earlier this year, Amazon purchased a $650 million data center in Pennsylvania next to a nuclear power plant that will provide the needed electricity.
Oklo signed a letter of intent with data center operator Equinix (EQIX) that included a $25 million pre-payment.
It’s not just the SMRs that are starting to become hot investments. The country’s largest operator of nuclear power plants, Constellation Energy (CEG),is up 140% in the last 12 months.
This investment opportunity is one of my favorites for the next decade and there is much more insight I want to share. Expect more articles on the topic in the weeks and months ahead.
Here’s to the future,
Matt McCallEditor, Market Insights
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