The Ethical Investor: Late to Nvidia? Uranium stocks could be a savvy AI alternative

Constellation Energy’s nuclear energy to power Microsoft’s data centres
Nuclear is seen as ethical choice for sustainable investing
Nuclear power emerges as an alternative bet on AI

Constellation Energy Corp (NASDAQ:CEG), the largest operator of nuclear reactors in the US, saw its stock soar 22% to an all-time high on September 23.

The surge followed the announcement that the infamous Three Mile Island reactor in Pennsylvania, which has been offline since 2009, is expected to return to service by 2028.

Microsoft has agreed to purchase the reactor’s output from Constellation for the next 20 years to power its AI data centres, stating the deal will ensure these centres operate on carbon-free energy.

This marks the first time Microsoft has committed to a dedicated nuclear facility; earlier in March, Amazon made headlines by purchasing a 960-megawatt data centre campus from Talen Energy for US$650 million.

Mark Zuckerberg has also emphasised the crucial importance of energy for Meta’s business, and has previously pointed out that energy constraints are the biggest hurdle in expanding AI data centres.

Meanwhile, Google aims to use 100% carbon-free energy by 2030 and has identified nuclear generation as a key technology to help achieve this goal.

“AI requires energy that is 24-7. And the nuclear power is one of the best sources to provide that consistent need for energy,” said Georgia Institute of Technology nuclear science professor, Anna Erickson.

Quick recap of Three Mile

The Three Mile Island nuclear incident occurred on March 28, 1979 near Harrisburg, Pennsylvania.

It started with a cooling system malfunction in one of the reactors, which caused the reactor core to overheat. This overheating led to a partial meltdown, where some of the nuclear fuel began to melt.

As a result, a small amount of radioactive gas was released into the atmosphere, although the majority of the radiation was contained within the plant.

Thankfully, no one was injured that day, and the incident did not result in any immediate health effects for the local population.

“Before it was prematurely shuttered due to poor economics, this plant was among the safest and most reliable nuclear plants on the grid,” said Joe Dominguez, CEO of Constellation, adding that he’s looking to bring the reactor online by 2028.

Not everyone’s convinced that reopening Three Mile Island is a good idea.

Some experts believe that while technology and safety measures have come a long way since the meltdown, the plant’s troubled history makes people uneasy.

But others reckon that with all the modern safety tech and better regulations in place, it could be safe to operate again.

Why Big Tech is going nuclear

Tech companies are increasingly turning to nuclear power to meet their energy needs, driven by several key factors.

Fund manager VanEck said that nuclear energy is a strong option for firms like Google, Microsoft, and Amazon, which are striving for net-zero carbon goals, as it produces minimal greenhouse gas emissions during electricity generation.

The long operational life of nuclear plants, typically 40-60 years, ensures a sustained supply of low-emission energy that is vital for combatting climate change.

Also, nuclear power provides a stable and cost-effective solution for data centres, which require reliable energy. Unlike renewable sources such as wind and solar, which can be intermittent, nuclear plants offer continuous energy output, crucial for avoiding disruptions.

While the initial construction costs are high, operational expenses are low and stable, making it an economically viable choice for extensive data operations.

The Advance Act in the US further supports this shift by facilitating the development of advanced nuclear technologies through funding for research and development, simplifying regulatory processes, and encouraging public-private partnerships.

“As these firms continue to expand their AI capabilities and data centre operations, the role of nuclear energy in meeting their growing energy demands is set to become more prominent,” said VanEck.

Nuclear a backdoor bet on AI for ethical investors

Investing in nuclear energy stocks is increasingly seen as an alternative way to bet on the future of AI.

As big tech companies commit to long-term energy contracts with nuclear plants, ethical investors are taking notice.

Tech companies aside, nuclear and uranium sectors were already poised for significant growth, with global uranium production already increasing by 12% in 2024, driven by key producers like Kazakhstan and Canada.

Demand for uranium is set to skyrocket, with the World Nuclear Association (WNA) anticipating a 28% increase by 2030 and nearly doubling by 2040 as countries aim to meet zero-carbon targets.

But this surge is just the beginning, says VanEck, as the WNA also projects that global nuclear capacity could rise dramatically from 391 gigawatts (GW) in mid-2023 to 686 GW by 2040.

This expansion will be largely fuelled by new reactor developments, particularly in China and India.

To navigate the promising landscape of nuclear investments, investors need to have a strategy, says VanEck.

Diversification is key – by spreading investments across companies involved in various aspects of nuclear technology, from reactor development to uranium mining, you can balance your portfolio and reduce exposure to sector-specific risks.

Adopting a long-term perspective is crucial, as nuclear projects often have lengthy development and operational timelines.

“Investors should be prepared for gradual returns as nuclear plants and technologies take time to mature and become fully operational,” the fundie said.

And as AI continues to drive energy demand, tech giants will be increasingly turning to nuclear power.

“By understanding these dynamics and strategically positioning investments, investors can capitalise on the promising growth trajectory of the nuclear sector.”

Now read: Power Up: We need to have a talk about nuclear energy

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.