Forget Nvidia: Here’s 1 Under-the-Radar Data Center Stock to Buy

One of the biggest themes fueling capital markets right now is artificial intelligence (AI). What investors may not realize, however, is that there are many components to AI — some of which sit quietly in the background.

One of the most important emerging narratives in the AI ​​revolution is data centers. While megacap tech giants like Nvidia have benefited greatly from increased demand for data center services, savvy investors understand that there are ample opportunities.

In particular, nuclear power companies may be worth a look as data centers continue to witness huge growth.

Let’s explore how nuclear power is playing a role in data center development and why I see it Constellation Energy (CEG 2.88%) as a profitable opportunity right now.

How can nuclear power play a role in data centers?

Data centers are facilities that house IT infrastructure, such as server racks, which essentially act as storage clusters for semiconductor chips. These chips are constantly processing a lot of information and tend to experience abnormal heat levels.

The combination of constant data processing and thermodynamics makes data centers consume a large amount of energy.

Today, data centers account for 2 percent of total U.S. electricity use, according to the Department of Energy.

While it’s still early days, some companies are beginning to seriously consider nuclear power as an alternative to solar and wind services to help grow their data center energy infrastructure. Nuclear energy is considered to be more reliable against blackouts compared to other forms of energy.

What’s more, nuclear is also a form of clean energy — making it even more compelling for businesses committed to sustainability.

Some interesting conversations at Constellation Energy?

In April, Constellation Energy CEO Joe Dominguez spoke briefly with Bloomberg about the company’s growth roadmap and how AI is playing a big role. When asked which major tech companies Constellation is currently talking to about its nuclear power capabilities, Dominguez said “all of them.”

While that’s encouraging to hear, it’s perhaps not too surprising.

Just last year, Constellation struck a deal with “Magnificent Seven” member and AI darling. Microsoft. Under the terms of the agreement, Microsoft will use Constellation’s services at one of its data centers in Virginia.

Image source: Getty Images.

What is the long term?

Outside of Microsoft’s deal with Constellation, Amazon acquired a nuclear-powered data center from Talen Energy earlier this year.

I see these big tech moves as a good proxy for what’s to come and I’m optimistic about the future of nuclear power consumption.

With data increasingly being used by corporations of all sizes to make more informed and effective decisions, I don’t see investment in cutting-edge technologies like artificial intelligence slowing down anytime soon. For this reason, I think investors should keep a close eye on AI-adjacent opportunities, especially in the energy sector, as they could prove to be profitable in the long term.

Right now, Constellation Energy is trading at a price-to-earnings (P/E) ratio of just 23.2. In contrast, P/E for S&P 500 is significantly higher at 27.5.

I think investors are underestimating the potential that nuclear power could have in the AI ​​landscape. Given Constellation’s discount to the broader market, along with some initial signs of demand from the world’s biggest AI players, I think the stock looks like a great buy right now for long-term investors.