When you think about artificial intelligence (AI), things such as self-driving cars and humanoid robots might come to mind. Counterintuitively, it's often a good idea to think about how products are actually brought to life whenever a new big trend emerges. Some of the most lucrative opportunities are also often the least obvious ones.
For AI to even work properly, companies have to invest large sums of capital expenditures (capex) into data centers. Although data centers might seem like just a piece of real estate, they are far more sophisticated and important. They house critical IT infrastructure, such as chipsets known as graphics processing units (GPUs) -- an important component of generative AI applications.
Today, Nvidia is one of the biggest names in the data center realm. But what if I told you I see another opportunity as the superior choice among data center investments and that it's not even a technology company?
It's important to consider all options -- even the most tangential ones. Let's dig into a nuclear energy stock that I think may end up being the most important data center company in the long run and explore why this could be a lucrative opportunity for investors.
Nuclear-powered data centers are on the rise, and...
A major selling point of AI is that the technology can bring a new wave of efficiency to a host of use cases. From breakthroughs in enterprise software to self-driving cars, AI is promising a new level of productivity and safety that's never been witnessed.
Although that sounds great, as with all things, AI comes with some major trade-offs. Namely, building AI applications is a pricey ambition. GPU hardware and high-performance computing software are some of the more obvious expenses in AI development. One of the more subtle costs in an AI roadmap resides with data centers, particularly their energy consumption.
GPUs are constantly running complex algorithms and performing sophisticated computing tasks. This makes IT architecture, such as server racks, consume a lot of energy and, in particular, give off a lot of heat. Data centers are equipped with a number of temperature control protocols, such as air conditioning units, fans, and generators.
However, these solutions are both costly and can be inefficient compared to other sources of energy control. An emerging trend at the crossroads of data centers and energy consumption is nuclear power, and some really notable companies and business leaders are getting involved.
Image source: Getty Images.
...a lot of big names are involved
One notable company involved with nuclear-powered data centers is Amazon. One of the biggest businesses in Amazon's ecosystem is its cloud computing platform, Amazon Web Services (AWS). Earlier this year, AWS acquired a nuclear-powered data center from Talen Energy for a reported $650 million.
Another player emerging on the nuclear power scene is Oklo. Oklo develops nuclear fission reactors that it aims to sell to data centers and utility companies.
When it was still a private company, Oklo raised funding from Peter Thiel and OpenAI co-founder Sam Altman. A few months ago, Oklo went public through a special purpose acquisition company (SPAC).
According to its investor presentation, the company has received interest for its reactors from major companies, including Diamondback Energy, Equinix, Siemens Energy, and even the U.S. Air Force.
While this caliber of attention and Altman's support are impressive, I see Oklo as a risky bet at the moment. The company is still pre-revenue, and the potential deals referenced above are in early-stage negotiations.
Oklo will likely require hefty ongoing research and development (R&D) costs to build out its reactors, which will take a toll on the company's liquidity so long as there aren't material sales coming through the door.
My top pick at the intersection of nuclear energy and data centers is...
My top choice among nuclear power suppliers for data centers is Constellation Energy (CEG 2.38%). The company offers a host of energy services but is making sustainability and nuclear energy a specific focus.
One of the company's known nuclear power customers is "Magnificent Seven" member Microsoft. During the company's second-quarter earnings call in late August, CEO Joseph Dominguez referenced Comcast and Johns Hopkins as other notable customers of Constellation's carbon-free energy services.
Other mega-cap tech companies will likely follow Amazon and Microsoft's moves. Constellation's diverse customer base signals that green energy is not just a use case for data centers or big tech hyperscalers.
Investors with a long-term horizon may want to consider a position in Constellation Energy right now. I think nuclear energy solutions will become more mainstream as the AI revolution continues to evolve. Given how early the AI narrative seems to be, I think an opportunity such as Constellation Energy is largely overlooked or underappreciated -- making it a tempting buy among other opportunities in AI, data centers, and energy consumption.
