The truth behind the nuclear stockpiles that emerged this week

Nuclear stocks have been on fire this week as nuclear news has become a hot topic once again. The energy requirement for AI data centers is so astronomical that not only are new factories being planned, but old factories are being restarted.

According to data provided by S&P Global Market Intelligence, Uranium Energy (UEC -1.72%) increased by 17.1%, Cameo (CCJ) increased by 9.6% and NuScale Power (SMR 7.82%) is up 15% this week. Shares of the companies were up 14.8%, 8% and 15% for the week as of 1:00 PM ET on Friday.

Image source: Getty Images.

Big tech falls in love with nuclear power

At the end of last week, Constellation Energy announced that it has agreed to a long-term power purchase agreement with Microsoft to sell 100% of the electricity from Unit 1 at Three Mile Island for years to come. Microsoft will use electricity to power data centers in the PJM area, part of the network on the US East Coast

This followed comments from Oracle CEO Larry Ellison earlier this month, who said his company is planning a data center that has three small nuclear reactors attached to it.

The consensus is that nuclear power will play an important role in future energy needs for artificial intelligence. In theory, this should be good for nuclear power stocks.

The moment is not favorable

As much as there is hype about nuclear power this week, a nuclear power plant takes years and sometimes decades to complete. Three Mile Island operated for decades before closing in 2019, and it will take until at least 2028 to reopen the plant.

Small modular nuclear reactors have been the “next big thing” in nuclear power for a decade, but they may not be operational until 2030 or beyond.

The market reacts to nuclear hype in days and weeks, but nuclear power will take a decade to become a reality.

The uranium market tells a different story

Another factor investors need to consider is how uranium prices will be affected by increased demand. But there’s also supply to consider.

According to the US Energy Information Administration, US uranium production has tripled from a year ago. Even with restrictions on uranium imports from Russia, supply does not appear to be a concern for the industry.

Prices reacted negatively, falling more than 20% from their highs earlier this year. For uranium producers like Uranium Energy and Cameco, supply/demand dynamics and falling prices will affect the bottom line.

The bright future of nuclear power is far away

It’s easy to get excited about the future of nuclear power, given recent nuclear deals and the hype around artificial intelligence. But consider the market’s reaction this week to the operational reality facing these companies.

It will be many years before any kind of windfall emerges, and even then it may not be as large as expected if uranium mining increases or plant costs are higher than expected. Because of this, I think the recent hype will die down soon.