The Future of Computing and Energy: How Nuclear Power and Technology Converge

In an exciting development, the next era of computing seems poised to intersect with the next phase of nuclear energy. Microsoft Corp. (ticker: MSFT) is actively exploring the prospect of powering artificial intelligence data centers with small modular reactors. These compact reactors offer the potential to generate nuclear power on a smaller scale compared to traditional plants, and they might be the key to meeting the increased energy demands of AI data centers.

Microsoft's interest in nuclear energy doesn't stop there. Earlier this year, the company announced its plans to purchase power from a nuclear fusion startup in 2028. Furthermore, Microsoft has partnered with utility company Constellation Energy Corp. to source part of the power needed for a data center in Virginia from nuclear energy produced by the utility. In 2022, Microsoft revealed its intention to purchase clean energy credits from nuclear assets in Ontario. Going back even further, in 2008, Bill Gates, co-founder of Microsoft, founded TerraPower, a company working on small modular reactors similar to those that Microsoft envisions powering its AI data centers.

While the nuclear industry has faced challenges and controversies in the past, it appears to be undergoing a resurgence as countries strive to reduce carbon emissions and address their energy needs. Advancements in technology and safety measures are making nuclear energy a more viable and sustainable option for many nations. Despite some environmental concerns related to radioactive waste, prominent figures like Bill Gates and other billionaires remain intrigued by the potential of the next generation of nuclear energy.

For investors interested in participating in this burgeoning industry, here are three companies representing various aspects of the nuclear sector and a couple of exchange-traded funds (ETFs) that can provide diversified exposure to this investment theme:

1. Constellation Energy Corp. (CEG)

• Year-to-date return as of October 5: 26.4%

With the largest fleet of nuclear plants in the United States, Constellation Energy is a prime candidate for Microsoft's nuclear energy requirements. The company recently reported that its 21 reactors at 12 sites operated nearly 100% of the time during June, July, and August, delivering carbon emission-free power to millions of homes. As a utility, Constellation offers defensive investment attributes and is particularly stable, making it a good choice during economic uncertainty.

2. Cameco Corp. (CCJ)

• Year-to-date return as of October 5: 63.8%

Cameco Corp., a Canadian uranium producer, is the world's second-largest uranium miner. The rising prices of uranium present significant opportunities for the company. Supply and demand dynamics have contributed to a 47% increase in spot uranium prices year-to-date. Given these favorable conditions, uranium mining, enrichment, and nuclear component players may benefit from the growing interest in nuclear energy. Goehring & Rozencwajg Associates predicts that uranium prices could return to their mid-2000s all-time high of $145 per pound.

3. NuScale Power Corp. (SMR)

While NuScale Power Corp. is a relatively new startup focused on designing and marketing small modular nuclear reactors, it has achieved critical milestones. The company received certification from the U.S. Nuclear Regulatory Commission for one of its designs and subsequently obtained commission approval in 2020. Moreover, it has successfully applied for the approval of a design with higher power output. These pressurized water reactors can produce 77 megawatts of electricity, with scalability up to over 900 megawatts, making them suitable for replacing retiring coal plants and supporting renewable energy installations.

Exchange-Traded Funds (ETFs):

4. Global X Uranium ETF (URA)

• Expense ratio: 0.69%

URA provides diversified exposure to uranium mining and the production of nuclear components. With an expense ratio of 0.69%, this ETF includes companies involved in uranium extraction, refining, exploration, and equipment manufacturing for the nuclear and uranium industries. By reducing risk and enabling broader exposure, URA is an attractive option for investors interested in the nuclear sector.

5. VanEck Uranium+Nuclear Energy ETF (NLR)

• Expense ratio: 0.61%

NLR invests in uranium mining companies, nuclear facility engineering and maintenance, electricity production from nuclear sources, and equipment or service providers to the nuclear power industry. As governments grapple with increasing clean energy demand, nuclear energy presents a significant opportunity. NLR's diverse holdings are well-suited for investors seeking to mitigate overall portfolio risk and capitalize on the growth potential of nuclear energy.

The convergence of technology, energy, and environmental concerns is shaping the future of nuclear energy. By considering these companies and ETFs, investors can participate in this evolving industry while managing their investment risk.

[email protected]