A $295 Billion Opportunity Is Hiding In Plain Sight. 2 Stocks That Should Help You Plug Into It.

October 20

Last month, utility company Constellation Energy unveiled plans to restart one of the two now-mothballed nuclear reactors at Pennsylvania’s Three Mile Island power facility.

On the surface it doesn’t mean much. The world needs more electricity right now. Nuclear is a quickly accessible low-cost option.

There was a curious detail within Constellation’s press release, however. That is, although it will connect to the national power grid, the electricity it will generate is largely meant to power AI data centers managed by software giant Microsoft. The news underscores the fact that data centers are power-hungry, and increasingly so the bigger the business gets. Goldman Sachs believes data centers’ power consumption will grow 160% between now and 2030, yet will still just be getting started then.

The restart of Three Mile Island’s 800-megawatt reactor, however, is only a stopgap measure. The future of nuclear power is likely to be defined by so-called small modular reactors, which are precisely what they sound like … nuclear power plants that are easy to build and cost-effective to manage. Perhaps most notably, they can be put into action much close to where the electricity they generate is used, rather than delivering their electricity through the power grid.

Two particular companies stand ready to capitalize on this quickly gelling opportunity.

Small modular reactors are the real deal

This isn’t merely theoretical thinking either. Just within the past week Alphabet as well as Amazon announced intentions to purchase electricity generated by small modular reactors (or SMRs) to power their AI data centers. Industry research outfit Wood Mackenzie estimates the SMRs already under construction will eventually be able to produce over 22 gigawatts of electricity. That’s enough to power over 16 million homes or, presumably, at least a whole bunch of data centers.

Even before the first of these power plants becomes operational, though, more are apt to be lined up in anticipation of their success. IDTechEx reports the annual SMR market will be worth over $72 billion per year by 2033, en route to $295 billion in 2043. That’s an annualized growth rate of 30%.

It almost sounds too fantastical. If nothing else the complicated logistics of the SMR movement is a limiting factor.

There are many factors working in the small modular reactors’ favor, however, that are so much more powerful.

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Image source: Getty Images.

Chief among these factors are carbon-neutral power goals that are evolving into outright mandates. While nuclear power may have a dented reputation due to its fair share of catastrophic (or near-catastrophic) accidents, it does work and can be safe using more modern reactor designs and better-grounded standards.

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Another driving force is the way and reasons energy is created and then utilized. Modular reactors are feasible for on-site energy creation at facilities like mines, refineries, and desalination plants, or even for generating the heat needed by smelters, many of which still burn coal.

SMRs are also particularly promising as a means of producing pure hydrogen, used in fuel cells to create clean electricity. The stumbling block is just the amount of raw energy needed to split water into its two atomic elements (hydrogen and oxygen) in the first place. With nuclear power, there’s plenty of clean energy to spare when splitting water molecules.

Two ways to play

So it’s a work in progress. The core opportunities are starting to gel, though. Two stand out among the rest.

First, with the creation and consumption of nuclear power set to grow for the foreseeable future, the world needs more nuclear fuel — predominantly uranium-238. BMO Capital Markets expects global consumption of uranium to grow by nearly 3% per year through 2035.

That’s not massive growth, but given that the supply-and-demand dynamic favors continued price increases, look for uranium prices to continue growing.

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Uranium Spot Price Chart

There’s a handful of publicly traded uranium miners like Uranium Energy (NYSEMKT: UEC) and Australia’s diversified mineral miner BHP Group Limited. But perhaps your best bet is a company called Cameco (NYSE: CCJ). It’s one of the world’s biggest suppliers of high-grade uranium, selling $2.6 billion worth of nuclear fuel last year, turning $339 million of it into net income thanks to its low-cost operation. It’s also sitting on nearly 500 million pounds worth of the material just waiting to be dug up.

Small modular reactors are of course the other major opportunity. Nano Nuclear Energy (NASDAQ: NNE) and Oklo (NYSE: OKLO) are a couple of SMR manufacturers perhaps worth putting on your radar. A company called NuScale Power (NYSE: SMR), however, is arguably further along than any other outfit on the monetization front.

This optimism wasn’t felt a year ago when Utah Associated Municipal Power Systems canceled its plans made with NuScale to establish what would have been the nation’s first SMR. It wasn’t quite the indictment of the idea it was being made out to be at the time though. NuScale is still working on nearly a dozen other small modular reactor projects — here and abroad — with undeterred partners.

The reward aligns with the risk

There’s risk here, to be sure.

Again, although nuclear power itself is well-proven, small modular reactors aren’t; would-be partners may be taking a “wait and see” approach, prolonging the adoption process. Moreover, while NuScale is the only company with an SMR design thet’s been approved by U.S. Nuclear Regulatory Commission for use in this country, this particular 50-megawatt reactor design isn’t the 77-megawatt version NuScale Power ultimately hopes to offer. Even if the new model is approved, that approval won’t come through until mid-2025, clouding the bullish argument.

Waiting for absolute certainty before stepping in, however, also leaves money on the table. The time to take your shot on less-than-fully gelled premises is before they become obvious opportunities. Once they’re obvious, much of any prospective gain is in the rearview mirror.

Of course, given the fluidity of the movement, we can’t rule out the possibility of a new name surfacing as an important nuclear power player either. Keep your eyes open to that possibility too.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, and Goldman Sachs Group. The Motley Fool recommends Cameco and NuScale Power. The Motley Fool has a disclosure policy.

A $295 Billion Opportunity Is Hiding In Plain Sight. 2 Stocks That Should Help You Plug Into It. was originally published by The Motley Fool

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