Philippe Laffont is a billionaire investor best known for founding the hedge fund Coatue Management. While hedge funds are widely known for their sophisticated trading prowess and secretive natures, retail investors can get a glimpse into the stocks that financial institutions are buying and selling once per quarter by looking at a form 13F.
Coatue's latest 13F contained a number of trades across major technology stocks, particularly those looking to disrupt artificial intelligence (AI). However, the fund also made a massive purchase in a data center opportunity that has largely been flying under the radar. That's right! There are other opportunities in data centers besides Nvidia.
Below, I'm going to analyze the data center opportunity on Coatue's radar and assess if now is a good opportunity to buy the stock.
What data center stock did Coatue Management just buy?
According to its most recent 13F, Coatue purchased 2.9 million shares of Constellation Energy (CEG 2.46%) during the second quarter -- increasing its position by 139%.
I don't blame you if you're confused as to how a power utility could be seen as a data center opportunity. Here's the thing: Data centers consume a ton of power. With AI becoming more of a tailwind for businesses across all industry sectors, companies are going to need to invest in more energy-efficient infrastructure.
This is where Constellation Energy comes into focus. The company specializes in nuclear power, which is widely seen as a superior alternative to traditional sources of powering data centers.
Image source: Getty Images.
Some recent big-ticket moves in nuclear power
Several names in big tech have been quietly making moves at the intersection of nuclear power and data centers this year. In March, Amazon's cloud unit, Amazon Web Services (AWS), acquired a nuclear-powered data center from Talen Energy. And just this week, the company signed agreements with a state utility called Energy Northwest and Dominion Energy, both of which will be helping Amazon develop and explore how small modular reactors (SMR) can facilitate its nuclear power projects.
These deals by Amazon follow a similar one by Alphabet, which will be relying on Kairos Power to develop SMRs.
While the subject matter of Amazon's and Alphabet's recent moves have dominated headlines lately, Constellation Energy is by no means late to the party. The company has been working closely with Microsoft for quite some time, and several weeks ago, the two industry leaders announced plans to reopen a nuclear power facility on Three Mile Island in Pennsylvania.
Is Constellation Energy stock a buy right now?
The chart below illustrates the trends in Constellation's price-to-earnings (P/E) ratio over the last six months.
CEG PE Ratio data by YCharts.
The obvious takeaway here is that Constellation has experienced outsized valuation expansion recently. Following the announcement of the Three Mile Island deal on Sept. 20, shares of Constellation have risen as much as 12% -- a pretty sharp move based on one press release.
While I don't encourage trying to time your buying activity, I think investors need to approach Constellation with some caution right now. It's no coincidence that Amazon and Alphabet have made some moves with nuclear power companies on the heels of Microsoft's deal with Constellation.
I suspect more companies will be exploring nuclear power solutions for their data center needs. As such, shares of Constellation could experience some momentum based on any future news -- whether the company is directly involved or not.
NASDAQ: CEG
Key Data Points
The positive thing here is that the AI story is in its early chapters. For this reason, demand for data center services and adjacent opportunities, such as nuclear power, should continue to materialize in the long run.
While Constellation Energy stock may appear a little pricey right now, Coatue's investment is a savvy move. Investors with long-term horizons may want to keep this name on their radars.
