Is Nuclear Energy the Next Power Play?

Global electricity demand is amping up just as the push to reduce carbon emissions takes hold. And that’s making nuclear energy – known for its reliable, continuous clean power generation – especially attractive. At last year's COP28 climate conference, 22 nations committed to TRIPLING the world’s nuclear power capacity by 2050. That’s expected to significantly boost demand for uranium and benefit companies developing the next generation of advanced nuclear technology, known as "small modular reactors" (SMRs).

Here's a summary of the thesis:

SMRs are small reactors designed to be built in factories, delivered by truck or train, and then assembled on-site, saving time and money. Compared to traditional reactors, SMRs are safer, require less frequent refueling, and, in some cases, are more fuel-efficient.

One of the biggest advantages of SMRs is their ability to be located close to where demand is, so they can directly provide clean electricity to facilities like data centers, which require a constant, 24/7 supply of power.

Big Tech companies are turning to SMRs to meet the massive energy needs of their data centers while staying aligned with their climate goals. In the past two months, Oracle, Amazon, and Google have all announced big commitments to SMRs, which could encourage other firms to follow suit.

There are only two publicly traded pure-play SMR companies: NuScale and Oklo. NuScale is further along in deploying its technology, but both stocks are still high-risk investments.

A potentially safer way to play the SMR theme is through Centrus Energy, which produces the specialized uranium fuel needed to power most SMRs, positioning it to benefit regardless of which firm successfully commercializes its reactor. Centrus also owns a stable, cash-flow-positive business with high barriers to entry, selling enriched uranium to global utilities.

Regardless of whether the next wave of nuclear power is driven mostly by SMRs or traditional reactors, one thing is certain: uranium demand is set to surge. But supply is tight right now, and the market is expected to face a shortfall in the next decade.

That could continue to keep uranium prices hot, which won’t necessarily curb consumption since demand for the heavy metal is mostly oblivious to price changes. Nuclear plants must run continuously at full capacity, after all, and uranium is a relatively minor part of their overall operating costs.

There are two main ways to invest in uranium: through the commodity itself or via mining firms. And a balanced approach that includes both could be the most sensible strategy.