Hello, Reader.
Amazon.com Inc. (AMZN) is going nuclear.
On Wednesday, the company announced that Amazon Web Services (AWS) – its cloud computing platform – is set to invest more than $500 million in nuclear power.
AWS has signed an agreement with Dominion Energy Inc. (D), Virginia’s top utility company, to explore the development of a small modular nuclear reactor (SMR) near Dominion’s North Anna Nuclear Generating Station (located about halfway between Washington, D.C., and Richmond).
A SMR is a type of advanced nuclear reactor that can produce electricity. It has a smaller footprint and can be constructed faster than traditional reactors.
Amazon is just the latest of Big Tech to invest in nuclear energy. On Monday, Alphabet Inc. (GOOG) announced it will purchase power from Kairos Power, a small modular reactors developer. And in September, Microsoft Corp. (MSFT) made a deal with Constellation Energy Corp. (CEG) to restart a reactor at the infamous Three Mile Island nuclear facility.
These Big Tech companies are going nuclear for the same reason: artificial intelligence demand.
You see, when AI arrived on the scene, it immediately cleared a seat at the table for nuclear power, alongside renewables like solar and wind. The data centers that power AI technologies require such prodigious – and reliable – volumes of electricity, that tech giants like Amazon and Microsoft “rediscovered” nuclear power as an ideal energy source.
During the last three years alone, the combined electricity consumption of Amazon, Meta Platforms Inc. (META), Microsoft, and Alphabet soared more than 80%. That explosive growth is certain to continue. And in order to feed their growing appetite for electric power… they are investing directly in nuclear power.
So, in today’s Smart Money, I’ll further detail why a nuclear revival is underway… and why it is attracting record-high demand for a specific metal. In fact, a young bull market in this industry may last several more years.
Let’s dive in…
Nuclear Energy Has No Equal
When it comes to powering the data centers that support AI, nuclear energy has no equal.
Electricity that is intermittent could cause a big, expensive mess for data centers. Nukes prevent that problem. They can run continuously for long periods of time without needing maintenance or refueling.
Nukes also require a relatively small footprint, compared to renewable energy sources. Theoretically, a square plot of land, 22 miles long on each side, could accommodate enough nuclear reactors to power the entire United States.
By comparison, coal-fired power plants would require 50 times more land to accomplish that same task. But this analysis becomes almost comical when you start talking about renewables. Using wind power, for example, to electrify the entire U.S. would require a landmass about the size of Florida and Georgia, combined.
Nevertheless, some analysts on Wall Street have criticized the nuclear power deals by Amazon and Microsoft as “too expensive.” But that assessment ignores both the trajectory of the tech industry’s electricity demand and the daunting challenges of meeting that demand.
Every critic of the deals should bear in mind that the data center boom is in its infancy, and that as it grows, the competition for electricity could become ferocious.
According to BloombergNEF, more than 7,000 data centers are operating or under construction worldwide. These facilities would consume about 508 terawatt hours of electricity per year, if they were to run constantly. That would be more than the total electricity produced in Australia in a year.
To be sure, data centers are also exploring non-nuke power solutions. But the sheer volume of incremental electricity demand AI will produce requires a large-scale solution.
In 2022, data centers accounted for approximately 1.3% of global electricity demand. But according to Goldman Sachs, data centers will consume more than 4% of the world’s electric power by 2039, and more than 8% of U.S. electric power.
Bottom line: The tech industry’s recent nuclear deals are certainly putting nuclear energy in the spotlight.
Uranium to Benefit From Nuclear Demand
Although the worldwide tally of operating nuclear reactors has been hovering around the 430-level for three decades, a construction boom is underway. Sixty-two reactors are currently under construction globally, with another 92 on the drawing board.
Because of this construction activity, the International Atomic Energy Agency just boosted its annual projection for nuclear power for a fourth successive year. The Agency now expects global nuclear capacity to increase 2.5-fold by 2050.
Interestingly, the new, high-profile demand for nuclear power from the tech industry could accelerate the uranium industry’s growth and profitability.
The uranium mining industry is not prepared to accommodate growth of that magnitude. Cameco Corp. (CCJ), the largest uranium miner in the Western world, plans to boost output by nearly 5 million lbs. this year.
A handful of smaller mining companies are planning to open uranium mining operations over the next few years. But these efforts will not add significant volumes to the market. U.S.-based Uranium Energy Corp. (UEC), for example, opened a uranium-production facility in August that has a licensed production capacity of just 2.5 million pounds.
Bottom line: A major supply-demand imbalance is developing in the uranium market, and it will likely push uranium prices significantly higher. So, lofty prices could become the “new normal” in the uranium market.
To capitalize on that potential, I recommend investing in the uranium market. In fact, in my recent October issue of Fry’s Investment Report, I recommended a unique energy play that stands to benefit directly from the growth of AI technologies.
To learn more about my latest recommendation, click here to learn more about Fry’s Investment Report today.
Regards,
Eric Fry
