Shares of data center infrastructure company Vertiv Holdings (VRT +2.46%), as well as nuclear power-oriented companies Constellation Energy (CEG +2.23%) and NuScale Power (SMR 0.97%) were rallying big in Wednesday's trading, up 9.9%, 11.6%, and 6.5%, respectively, as of 12:44 p.m. ET.
These three companies can be thought of as "artificial intelligence (AI) adjacent," as each is thought to be a future beneficiary of the insatiable power and electricity demands of AI data centers. All three stocks had rocketed higher this year, but each also recently pulled back significantly amid the Nasdaq sell-off and rotation out of AI winners.
However, last night's earnings reports and commentary from AI companies Microsoft and Advanced Micro Devices seems to have allayed those fears, sending these AI beneficiaries soaring today.
NYSE: VRT
Key Data Points
The AI stock correction rebounds
Coming into earnings season, it had been feared by some that after such a large run-up in artificial intelligence stocks this year, second-quarter results might not live up to the hype. Meanwhile, there has been some negative news flow around some of these companies this month.
Vertiv is a leading supplier of power, cooling, and IT infrastructure solutions, and thought to be a huge beneficiary of the massive power and cooling needs for AI data centers. Vertiv reported very strong second-quarter results and raised full-year guidance on July 24, but investors were spooked when management forecast a sequential decline in orders for the current third quarter. However, management maintained that order activity, some of which are for multiyear projects, can be quite lumpy and that the demand pipeline was still very strong.
The renewed demand for power and electricity has also invigorated interest in nuclear power this year. Even after the recent sell-off, Constellation, the largest owner of independent nuclear power plants in the U.S., and Nuscale, which is pioneering a new advanced small modular reactor (SMR) nuclear technology, are up 45% and 190% on the year, respectively.
NuScale, as a loss-making purveyor of new technology, is the higher-risk play here, and was the target of a short-seller attack earlier this week. On Monday, short-seller Hunterbrook published a report stating NuScale was under investigation by the Securities and Exchange Commission (SEC), and also cast doubt on the company's technology. On Tuesday, the company responded by saying that it's not aware of any such SEC investigation, and that questions it has received from the U.S. Nuclear Regulatory Commission on its technology were routine.
Taken together with the recent fears that the blistering-hot AI growth we've seen over the past year will slow down, these companies have corrected significantly, with Constellation down 27%, Vertiv down 29%, and NuScale off 44% from their all-time highs, respectively.
AI data centers are spurring demand for nuclear energy and power management solutions. Image source: Getty Images.
However, last night's commentary from Microsoft and Advanced Micro Devices on AI growth seemed to calm at least some of those fears.
On its conference call with analysts, Microsoft CEO Satya Nadella noted that customers were returning and buying more seats for the AI-powered Microsoft 365 CoPilot product, with total CoPilot seats doubling quarter over quarter. Nadella also said the AI-powered Github CoPilot was now bigger than Github overall when Microsoft first bought it in 2018, and noted continued spend in Azure on AI training.
Meanwhile, AMD handily beat expectations in its reported quarter and also guided above expectations on strong data center growth. Data center growth surged 115% compared with the prior year, and AMD also revised upward its 2024 guidance for MI300 AI chip sales to $4.5 billion, up from $4 billion previously.
Look for the AI story to continue
Recent fears and a market rotation out of Nasdaq AI stocks has no doubt rankled investors, but from all indications this earnings season, the AI growth story appears well intact. Investors should therefore view the pullback perhaps as a healthy correction after strong first-half gains, and not the beginning of a tech crash.
For those with a long-term perspective, the recent pullback could therefore present a good entry point into several AI names.
