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Artificial intelligence (AI) stocks, be they hardware companies like Nvidia or software companies like Alphabet, have delivered investors some solid returns in the past few years.
But whenever there's a major bull run in a single industry or around a single trend, fears will begin to mount about a bubble forming and then about a bubble popping. And you don't have to look very far these days to find media sources talking about the possibility of an AI bubble.
So, what's an investor to do? Obviously you want to hedge your bets so that if there is a bubble, your returns don't get wiped out. But if it's not a bubble and this AI bull market is going to keep going full steam ahead, you don't want to miss out.
Well, fortunately, there are some stocks that will allow you to both hedge against a bubble and profit from the AI industry. And Maryland-based Centrus Energy (LEU +7.21%) is one such stock.
NYSE: LEU
Key Data Points
Enrich your portfolio
Centrus is a nuclear fuel refiner. Uranium's not like coal, you can't pull it out of the ground and burn it. Well, I guess you could but I wouldn't advise it. No, uranium needs to be enriched from the yellow powder most miners produce into uranium fuel pellets that go into the fuel rods a reactor runs on. And that, simply put, is what Centrus does. It produces or procures two different kinds of enriched uranium, low enriched uranium (LEU) and high-assay low enriched uranium (HALEU) which is used in the development of next-gen nuclear reactors to enable them to be smaller.
The company has long-standing agreements to acquire fissile material from Russian and French suppliers to sell LEU to American utilities companies. Last year it signed an agreement with South Korea's KHNP and POSCO which could see them added to its list of customers as well. The HALEU is primarily sold to the U.S. government for testing.
The company designs, builds, and operates some of the most advanced centrifuges on the market to produce fuel at its manufacturing facility in Oak Ridge, Tennessee, which is coincidentally where most of the uranium and plutonium used for the Manhattan Project came from.
And demand for nuclear energy, and therefore uranium fuel, is on the rise. Now a large part of that is due to data center power demands because of AI. The International Energy Agency (IEA) projects a base case scenario where global data center power consumption doubles by 2030.
But even without data centers driving it, nuclear energy output is expected to grow 40% over the next 30 years by Centrus' estimates. And, Centrus also projects that for the U.S. to achieve zero net emissions by 2050 it would need to triple nuclear energy production. And funny enough, the Department of Energy has stated that that is precisely its goal for the middle of the century.
This has in turn driven Centrus' revenue growth spurt, which has seen its revenue compound annual growth rate (CAGR) accelerate from 16.68% over the past five years to 20.96% over the past three. The company also has a very healthy gross profit margin of 31.78% and net income margin of 25%.
In terms of its balance sheet, the company holds $1.63 billion in cash to $1.21 billion in debt for a positive cash position, which I very much like to see.
And despite Centrus' financial difficulties in the 2010s and it being at the mercy of uranium prices, I don't think its growth streak is coming to an end anytime soon. The nuclear revival isn't just in the United States. Globally, uranium demand is expected to grow 28% through the end of the decade as reported by the World Nuclear Association. Countries around the world are either building new reactors or restarting retired one. Japan is a good example, since 2015 it has reactivated 14 of its nuclear plants. In total there are 70 new nuclear reactors under construction globally with another 115 planned.
The stock is a serious performer too and offers growth comparable to many AI companies without being an AI company. It's up 236.98% over the past 12 months, dramatically outperforming the S&P 500.
Solid financials, positive cash position, fast growth, and a secular trend fueling it? Add all that together and I think Centrus makes a good case for itself as a hedge against any potential AI bubbles.
