Nuclear energy stocks hit record highs on AI demand

Nuclear energy stocks surged to record highs this week after Amazon and Google struck landmark deals for power supplies, bolstering efforts to deploy the first small modular nuclear reactors in the United States.

Shares of U.S.-listed modular reactor developers Oklo and NuScale Power surged 99% and 37%, respectively, last week after their rivals, privately held modular reactor developers X-energy and Kairos Power, announced financing agreements. Cameco, Oklo, NuScale, Constellation and BWX Technologies also traded at record highs during the week.

The deals support the deployment of up to a dozen new-generation nuclear reactors to provide low-carbon electricity to power Amazon and Google’s AI data centers, which require vast amounts of energy.

According to CNBC, investors viewed the announcements as evidence that the nuclear renaissance is picking up speed, after the slump that followed the Fukushima disaster in Japan in 2011. This historic surge in energy demand in the United States is attributed to the proliferation of data centers, which is hampering efforts to reduce dependence on fossil fuels and achieve decarbonization.

Shares of Constellation Energy Group, which operates the largest fleet of conventional reactors in the United States, have more than doubled since the beginning of the year.

Last month, Constellation signed a 20-year power supply deal with Microsoft that will lead to the restart of the Three Mile Island nuclear power plant in Pennsylvania, the site of the deadliest nuclear accident in U.S. history, when one of its reactors suffered a partial meltdown.

Shares of uranium producer Cameco have risen 38% this year, while shares of nuclear component supplier BWX Technologies have risen 65%.

“Reactor companies have long said they will be needed to meet the growing demand for energy from AI, but no one has believed them,” said Seth Gray, CEO of nuclear fuel developer Lightbridge Corporation and chairman of the American Nuclear Association’s International Council.

“These large investments show that the tech industry doesn’t believe that renewables and batteries can provide sufficient, stable or cost-effective power, and that nuclear will be needed.”

Until recently, investors have been reluctant to fund the deployment of small reactors, which are touted as smaller, safer and more efficient than large nuclear reactors.

Concerns about the industry’s track record of delivering projects on time and on budget, along with rising interest rates and a lack of customers willing to subscribe to projects, have slowed progress.

Last year, X-Energy was forced to cancel a $1.8 billion deal to go public via a special purpose acquisition company due to “challenging market conditions.” Shortly after, NuScale scrapped plans to build the first small reactor in the United States. There wasn’t enough interest from utilities to buy power from it after it raised its prices by more than 50% in two years, to $89 per megawatt-hour.

“The dilemma for the small reactor industry was that customers didn’t want to sign up for the ‘first reactor,’ because it’s more expensive and risky to build than the later ones,” said Mark Bianchi, an analyst at TD Cowen.

Amazon and Google’s decisions to invest in small reactors reflect their need to secure reliable, cost-effective, clean electricity to power a new wave of AI-driven data centers. According to a Wood Mackenzie report, new data centers with a total capacity of nearly 24 gigawatts were announced in the first half of 2024, more than three times the same period last year.

“It’s not just about replacing fossil fuel generation, it’s about building more now,” said Mike Laffer, founder and CEO of Kairos Power, which this week signed a deal with Google to deploy six or seven small reactors by 2035. “That creates a real sense of urgency.” The industry also benefits from billions of dollars in U.S. government funding, which worries that Russia and China—which have deployed a number of small reactors—may become unsurpassed leaders in nuclear power. Washington also recognizes the need to ensure a stable energy system to maintain its edge in AI technology without increasing emissions.

“The only limit to the United States continuing to lead in AI is energy,” said Clay Sell, CEO of X-Energy. “Not land, not chips, energy. That’s the number one goal.”

Critics, however, warn that the enthusiasm surrounding nuclear power this week, particularly small reactors, masks significant risks in deploying a new generation of technology that has been plagued by delays and cost overruns in the past.

Edwin Lyman, director of nuclear safety at the Union of Concerned Scientists, said X-Energy and Kairos small reactors are “untested designs” that will likely take much longer to implement than their target dates of 2030 and beyond. “The road to safe, reliable commercial operation for any experimental nuclear technology will be a bumpy road,” he said, “and it’s almost impossible to estimate the ultimate cost of energy today.” “The enthusiasm is probably a little overblown,” said Andres Gloske, chief executive of AES, the largest developer of renewable energy for large companies, which has signed 5.8 gigawatts of power purchase agreements with Google, Microsoft and Amazon.

Data from Lawrence Berkeley National Laboratory shows that solar, wind and battery storage account for 95% of the capacity waiting to be connected to the grid, while nuclear accounts for less than 1%.

No small reactor projects have started in the United States yet, and more than 80% of announced capacity is not yet in development, according to a report by Wood Mackenzie.

But small reactor developers say they are confident that the support of technology companies is the change they need. “The technology community has put a premium not only on the benefits of carbon reduction, but also on the availability and reliability of energy,” said Clayton Scott, chief commercial officer at NuScale. “The momentum is there.”