Shares of nuclear power providers Constellation Energy (CEG +1.28%), Vistra Energy (VST +1.91%), and Oklo (OKLO +2.31%) were in rally mode on Thursday, up 8%, 5.8%, and 8.5%, respectively, as of 1:45 p.m. ET.
None of these three companies reported earnings or had much in the way of company news today; however, the strong financial results and forward-looking capital spending guidance from AI leaders Microsoft and Meta Platform last night appear to have reassured investors in a big way on the sustainability of AI spending, and therefore future nuclear power demand.
Power is still a constraint
With the emergence of the low-cost Chinese AI model DeepSeek and recession fears emerging over the past couple of months, AI-related names have been hit hard. This goes not only for chipmakers and cloud companies but also for electricity providers, as electricity demand is projected to soar due to the demand from AI data centers.
NASDAQ: CEG
Key Data Points
One of the only ways to satisfy the excess electricity demand in a carbon-neutral way quickly is with nuclear power. Therefore, the emergence of AI has been very bullish for utility stocks with existing nuclear capacity, such as Constellation and Vistra, as well as small modular reactor (SMR) start-ups such as Oklo.
Of note, Constellation has the largest amount of nuclear capacity of any U.S. utility. That includes Three Mile Island, which it will reopen by 2028 in order to serve Microsoft data centers, under an agreement signed last September.
While you might not think the normally "boring" dividend-paying utility stocks would be so volatile, these stocks soared along with other AI stocks in 2023 and 2024, only to crash in recent months, as tariffs and the uncertainty around DeepSeek's AI model efficiencies caused AI stocks to fall.
However, last night's earnings reports and commentary from Microsoft and Meta Platforms went a long way to reassure investors that the AI story is still intact.
Microsoft delivered a healthy revenue and earnings beat, with especially good performance from its Azure cloud platform, which grew 35% in constant currency terms and was projected to grow another 34% to 35% in the current quarter.
Supporting that growth, management reiterated its capital expenditure (capex) plans for this fiscal year, while also noting that the company was still supply constrained by AI computing demand.
Last month, there were some reports that Microsoft was pulling back on data center construction, perhaps calling into question the Three Mile Island deal. However, the company said it still has a massive amount of capex planned. CEO Satya Nadella added:
... we will be short power. And so therefore -- but it's not a blanket statement. I need power and specific places so that we can either lease or build at the pace at which we want.
Not to be outdone, Meta Platforms not only reported a revenue and earnings beat, but also increased its capex plans for 2025, raising its guidance range from $60 billion to $65 billion to a new range of $64 billion to $72 billion. Chief financial officer Susan Li said on the conference call, "even with the capacity that we're bringing on line in 2025, we are having a hard time meeting the demand that teams have for compute resources across the company."
All AI systems are a go
Given the rapid growth in AI infrastructure spending in 2023 and 2024, it's understandable that investors would be nervous about that strength continuing. However, the DeepSeek efficiencies as well as broader economic concerns from tariffs don't appear to be making a dent in these companies' data center investments and, by extension, the demand for electricity.
It's not hard to understand why. The growth opportunities for whichever company leads in AI are too big to pass up, and these massive "Magnificent Seven" leaders have the financial resources to make big data center investments even if the economy slows down.
Therefore, it appears the demand for electricity is still on a strong and accelerating growth path through the end of the decade, which should benefit these important power providers.
