In recent weeks, AI stocks have taken a beating. Nvidia (NASDAQ:NVDA) shares, for example, are down more than 20% over the past 30 days.
But short-term valuation swings won’t change one of the biggest AI trades this century: clean energy.
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The latest correction in AI stocks has little to do with demand. “AI demand remains strong,” confirms research from Barclays. “Nothing suggests demand for AI is fading, but investors are now questioning who will pay for the build-out, and how.”
Capital allocation concerns may shift the pace and timing of the AI data center build-out. But the global build-out — which some estimates project will consume up to $7 trillion this decade alone — is still expected to occur. That’s great news for companies looking to deploy new clean energy generation capacity.
“A lack of capital is not the most pressing bottleneck for AI progress — it’s the power needed to fuel it,” warns Goldman Sachs. “One of the clearest constraints on the AI build-out is energy,” confirms research from Morgan Stanley. “Power is emerging as the binding constraint of the AI buildout,” JPMorgan analysts add.
The AI industry’s desperate need for more power has triggered a wave of interest in next-gen nuclear energy companies, including NuScale Power (NYSE:SMR) and Oklo Inc. (NYSE:OKLO). But Constellation Energy (NASDAQ:CEG) might have the most promising strategy of all.
Here’s the problem with next-gen nuclear energy stocks
The AI industry craves new energy. That energy preferably emits minimal carbon, can generate consistent baseload power, and has low upfront capital costs. These motivations have helped interest in SMR developers like Oklo and NuScale to surge in recent years.
There’s just one problem: only a handful of SMR systems are currently in commercial operation worldwide. While many dozens are currently in some stage of development, a limited number of real-world examples means that cost estimates and true power production have a level of uncertainty. These concerns have plagued the pace and scale of the SMR revolution.
When it comes to getting additional nuclear generation capacity online, perhaps Constellation Energy has a superior strategy.
Image source: Getty Images.
Constellation Energy has a more reliable AI strategy
Constellation Energy is already the largest generator of nuclear power in the U.S. In total, the nuclear energy company generates around 22 GW of nuclear energy across 15 facilities nationwide.
Constellation Energy’s management team has noted the opportunity to meet the AI industry’s rampant need for more power. But instead of building new nuclear plants — typically a costly, lengthy endeavor — the firm is focused on expanding capacity at its existing plants.
One of Constellation Energy’s projects, for example, will increase energy generation capacity by 890 MW by modernizing an existing plants equipment. The company is also investing more than $1 billion to restart the Three Mile Island facility in Pennsylvania. That project should enter commercial production sometime next year.
To be clear, Constellation Energy stock isn’t a pure play bet on nuclear. Only around 40% of the firm’s energy portfolio is nuclear, with the rest focused on natural gas, oil, renewables, and battery storage. But the company has inked power purchase agreements with several big tech operators, and its nuclear strategy appears very strong in terms of timing and revenue-generation visibility.
Despite not being a pure play nuclear stock, Constellation Energy can still be viewed as a bet on the AI economy. Industry insiders predict that the AI industry will need large amounts of new power in the years to come, perhaps even 1,000 times more power than is currently generated. Constellation Energy’s diversified energy portfolio and aggressive approach to investing in growth make it attractive to long-term investors looking to ride the AI wave.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy, Goldman Sachs Group, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
