Forget Nvidia: This Another Stock Could Be the Biggest Data Center Opportunity of All, and It’s Not a Tech Company

When you think of artificial intelligence (AI), things like self-driving cars and humanoid robots might come to mind. Counterintuitively, it’s often a good idea to think about how products are actually brought to life whenever a big new trend emerges. Some of the most profitable opportunities are often the least obvious.

For AI to work properly, companies need to invest large amounts of capital expenditure (capex) in data centers. Although data centers may seem like just real estate, they are much more sophisticated and important. They house critical IT infrastructure, such as chipsets known as graphics processing units (GPUs) — an important component of generative AI applications.

Today, Nvidia is one of the biggest names in the field of data centers. But what if I told you that I see another opportunity as a superior choice among data center investments, and it’s not even a technology company?

It’s important to consider all options — even the most tangential ones. Let’s take a look at a nuclear energy stock that I believe may end up being the most important data center company in the long term and analyze why this could be a profitable opportunity for investors.

Nuclear powered data centers are on the rise and…

A major selling point of AI is that the technology can bring a new wave of efficiency to a number of use cases. From breakthroughs in enterprise software to self-driving cars, AI promises a new level of productivity and safety never seen before.

While that sounds great, like all things AI comes with some major trade-offs. Namely, building AI applications is an expensive ambition. GPU hardware and high-performance computing software are some of the most obvious expenses in AI development. One of the more subtle costs in an AI roadmap is data centers, specifically their energy consumption.

GPUs constantly run complex algorithms and perform sophisticated computing tasks. This causes IT architecture, such as server racks, to consume a lot of energy and, in particular, generate a lot of heat. Data centers are equipped with a number of temperature control protocols such as air conditioning units, fans and generators.

However, these solutions are both expensive and can be ineffective compared to other sources of power control. An emerging trend at the intersection of data centers and energy consumption is nuclear power, and some really notable companies and business leaders are getting involved.

Image source: Getty Images.

… a lot of big names are involved

A notable company involved in nuclear powered data centers is Amazon. One of the biggest businesses in the Amazon ecosystem is its cloud computing platform, Amazon Web Services (AWS). Earlier this year, AWS acquired a nuclear-powered data center from Talen Energy for an estimated $650 million.

Another player emerging on the nuclear power scene is OK. Oklo develops nuclear fission reactors that it aims to sell to data centers and utility companies.

When it was still a private company, Oklo raised funds from Peter Thiel and OpenAI co-founder Sam Altman. A few months ago, Oklo went public through a special purpose acquisition company (SPAC).

According to its investor presentation, the company has received interest in its reactors from major companies including Diamondback Energy, Equinix, Siemens Energyand even the US Air Force.

While this caliber of attention and support from Altman is impressive, I see Oklo as a risky bet at this point. The company is still pre-revenue and the potential transactions mentioned above are in the early stages of negotiations.

Oklo will likely require large ongoing research and development (R&D) costs to build its reactors, which will hurt the company’s liquidity as long as there are no material sales coming through the door.

My top pick at the intersection of nuclear power and data centers is…

The best choice of nuclear power providers for data centers is Constellation Energy (CEG). The company offers a range of energy services, but makes sustainability and nuclear energy a specific focus.

One of the nuclear power company’s well-known clients is a member of the “Magnificent Seven”. Microsoft. During the company’s second quarter earnings call in late August, CEO Joseph Dominguez referenced Comcast and Johns Hopkins as other major customers of Constellation’s carbon-free energy services.

Other megacap tech companies are likely to follow Amazon and Microsoft’s moves. Constellation’s diverse customer base signals that green energy isn’t just a use case for data centers or large technology hyperscalers.

Investors with a long-term horizon may want to consider a position in Constellation Energy right now. I think nuclear power solutions will become more popular as the AI ​​revolution continues to evolve. Given how early the AI ​​narrative seems to be, I think an opportunity like Constellation Energy is largely overlooked or underappreciated — making it a tempting buy among other opportunities in AI, data centers and energy consumption .