The next big AI trade could be nuclear power: Morning Brief

This is the conclusion of today's Morning Brief, which you can read Sign in Delivered to your inbox every morning, along with:

Nuclear power is facing a renaissance in the US, triggered by Big Tech's seemingly insatiable need for electricity for AI-generating data centers.

Three recent headlines made this clear: Microsoft signed an agreement with Constellation Energy to restart a reactor on Three Mile Island. Google has partnered with Kairos to buy electricity from small modular nuclear reactors, called SMRs. And Amazon is leading a $500 million funding round for another SMR company, X-Energy.

The nuclear energy industry is largely stagnating in the USA. Although the country has 94 nuclear reactors, according to the Energy Information Administration, their total generating capacity has been about 20% of all electricity since the late 1980s. When the Vogtle plant in Georgia commissioned its third and fourth reactors earlier this year, they were the first new units in seven years. A major reason for the slow pace is regulators' strict safety and design standards.

If Big Tech's investments are any indication, that could be changing. Chips and energy are the picks and shovels of the AI ​​movement, which is why re-examining nuclear energy is a logical conclusion. However, if investors want to follow suit with their dollars, they need to keep a few important things in mind.

One is that these projects — even the Three Mile Island reactor, which uses no new technology — are still years away. Three Mile Island is scheduled to come online by 2028.

Then there is the newer technology. The goal of small modular reactors is to create mini versions of larger nuclear fission generators at lower cost and with more flexibility, Kairos CEO Mike Laufer told Yahoo Finance.

But SMRs are not yet used in the United States. All companies receiving investments are in the experimental stage. Privately owned Kairos, for example, has received government approval to build a demonstration facility. Initially, it will run on non-nuclear energy to demonstrate its cooling technology, which Laufer says offers safety benefits. This demo is planned for 2030.

The second obstacle for investors is that there are not many listed entry options, especially pure stocks. Many of these stocks have soared this year. NuScale Power (SMR) is up more than 450%. Oklo (OKLO), backed by OpenAI's Sam Altman, went public via a SPAC in May and shares have gained more than 80% since then.

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The overall demand for electricity expected from data centers has also driven up utility stocks to near-unprecedented levels, and not just nuclear power plants. Their tariffs are regulated, so the bet depends on the expected expansion of the volume of demand. (The ETF, which tracks S&P 500 utilities, is up nearly 30% this year, which if it holds, would be a record gain.)

Uranium producers were another avenue for thirsty money looking for nuclear investments. Vancouver-based Uranium Energy (UEC) and Cameco (CCJ), for example, have been riding high for years and are near record highs.

All of this assumes that SMRs are approved and working. Clearly, more and more money is being poured into this direction, and Big Tech is motivated to pursue clean energy power generation.

“Right now these things are unproven,” George Gianarikas, an analyst at Canaccord Genuity who covers renewable energy, said in a telephone interview. “We don’t have many examples of working small modular reactors in the world. They are a promise.”

Julie Hyman is the co-host of Market dominance on Yahoo Finance. You can find them on social media @juleshyman.

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