Nuclear energy has crossed the Rubicon as big tech has made it clear that, to usher in the future of technology and AI, it needs the reliable and clean energy that nuclear power plants provide. In a hugely symbolic deal, Microsoft recently partnered with Constellation Energy to restart the largest domestic nuclear disaster site, Three Mile Island, to help run Microsoft’s new AI-led data center. It didn’t take long for Amazon and Google to join the party, securing their own nuclear deals. Who’s next?
It’s been a dramatic swing in sentiment for nuclear energy over the last few years. Not long ago, many nuclear power plants were being shut down or set to be decommissioned. The Fukushima disaster in Japan in 2011 set much of this in motion, along with the belief that alternative energy sources like wind and solar would take its place.
Wind and solar have fallen far short of expectations and have many pitfalls, but thankfully, the world is waking up to nuclear! It never made sense to abandon nuclear energy. It’s arguably the safest and cleanest form of energy we have, and unlike wind and solar, it is incredibly reliable as a base load of energy.
Like it or not, most people now realize and understand that technology is eating the world, and there’s probably nothing that can stop it. AI requires enormous amounts of energy. To meet this demand while reducing greenhouse gas emissions, nuclear is the only answer.
In rapid succession, tech companies are signing significant nuclear deals. Plants that were planned to be decommissioned are now being extended, plants that can be recommissioned are being brought back online, and new plants are being scheduled for buildout. Exciting new technology is not only making future plants safer, but the advent of small modular nuclear reactors is set to drive American innovation and manufacturing in the years ahead.
All of this is creating a truly massive supply deficit of uranium to feed the exponentially rising demand. Although uranium is plentiful, it’s not easy to mine, and it takes years to go from discovery to delivery. Production goals are continually missed due to various factors for most uranium producers.
This is creating what I believe is a generational investment opportunity in uranium. Supply is not expected to meet demand for the rest of this decade. The input cost of uranium is minimal to the overall cost of producing nuclear energy, meaning utility buyers won’t be overly concerned if they have to purchase it at twice the current price. When they need it, they need it. Additionally, nearly two decades of falling prices have made buyers apathetic about maintaining higher inventories or giving much thought to strategic purchases. There’s a perfect storm brewing for a buying panic. Commodities periodically see massive price spikes when these imbalances reach extremes. During COVID, natural gas shot up around 400%, and recently, cocoa has done the same.
As with any investment theme, there are risks, and it wouldn’t be prudent to omit what I see as the only significant risk to this thesis: the potential for a nuclear disaster. Nuclear power plants could melt down due to natural or unnatural causes. Fukushima melted down after a tsunami, and nefarious actors could intentionally sabotage the situation. While I believe that a repeat of past disasters wouldn’t derail nuclear power over the long term, it would certainly cause a significant hiccup in the process.
I expect uranium has every chance to more than double, or even match, the moves seen in natural gas and cocoa in the next several years as buyers race to secure uranium inventory to keep their plants running. Barring a disaster, it seems only a matter of time.
I view uranium as one of the lowest-risk investment opportunities I’ve seen, now that AI and tech have bought in. If you would like to learn more, please feel free to contact me at ajpickert@stewcap.com
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)