Shares of Constellation Energy (CEG -1.87%) jumped from $291.11 on Oct. 6 to $309.80 the same day following the announcement of its landmark 20-year power purchase agreement (PPA) and strategic collaboration with Alphabet.
There was plenty of enthusiasm for the $4.3 billion deal, which will add 890 megawatts of new nuclear capacity through updates at 11 Constellation-owned nuclear units in Illinois, Pennsylvania, and New Jersey.
However, in the days since the announcement, Consellation stock is actually down more than 3%. The reason is that the energy stock is already trading at a high multiple relative to its peers, at more than 28 times trailing earnings and more than 23 times forward earnings.
Here are three reasons why Constellation is worth that lofty valuation after the Alphabet agreement.
Image source: Getty Images.
The deal provides cash flow security
The deal locks in long-term demand over a 15- to 20-year horizon. It also has an additional 15-year agreement covering 2,700 megawatts from Constellation's existing nuclear fleet. Pairing the Alphabet announcement with a similar recent $3 billion, 20-year deal with Amazon establishes a predictable baseline of contracted cash flows.
This shields a significant portion of Constellation's nuclear fleet from merchant power price volatility and guarantees high-margin monetization for decades.
Instead of worrying about the typical construction delays, budget overruns, and regulatory hurdles connected with building nuclear plants from scratch, this deal focuses on uprates, which increase the maximum licensed electricity output of an existing, operational nuclear reactor. These include modernizing turbines, steam generators, and controls at existing facilities.
Just look at what happened with the last two new reactors, Georgia Power's Vogtle 3 and Vogtle 4 plants in Georgia, which cost more than $35 billion to build and took 15 years to build. Constellation is updating reactors already in place, a far more economical process, and expects to have the updates ready in 2028.
Analysts have an average price target of $341.53 for the stock, well above its current trading price.
CEG Constellation Energy
NASDAQ · As of 1:01 PM ET 10/15/26
Constellation isn't really overpriced
The stock is trading at lower valuations than its historical averages. That's because its shares have fallen more than 17% so far this year. It isn't fair to compare Constellation to other nuclear power stocks, as there isn't a direct comparison. Constellation operates the largest nuclear fleet in the U.S., about one-fifth of all nuclear capacity in this country.
Through six months, the company reported revenue of $18.6 billion, up 44.5%, year over year. Earnings per share were $5.88, an increase of 92.7% over the same six months a year ago. Those numbers show that the mystery isn't the company's valuation, but why it isn't even higher.
The company is a go-to for hyperscalers
Its size and scope mean Constellation is best positioned to benefit from the growing need for stable power for data centers, as it can provide 22 gigawatts of carbon-free nuclear power, three times more than any other utility in the U.S.
Hyperscalers such as Alphabet require firm, 24/7 carbon-free power to fuel energy-hungry artificial intelligence data centers, making intermittent renewables insufficient on their own. This deal, alongside consecutive mega-deals from other tech giants, validates that nuclear operators possess irreplaceable pricing power. It also shows that tech companies are willing to heavily co-invest to secure reliable electricity.
Most of Constellation's nuclear assets are on the PJM Interconnection grid. PJM encompasses Northern Virginia and the surrounding Mid-Atlantic regions, with the highest density of data center infrastructure in the world.
Individual hyperscalers are asking for multi-gigawatt commitments. Constellation is one of the only energy providers in the country with a large enough portfolio to handle multiple GW-scale agreements without exhausting its asset base.
Worth it, despite some risks
There are legitimate reasons that Constellation isn't trading higher. It's important to note that revenue from these uprates won't begin until 2028, leaving the stock vulnerable to a broader tech sector sell-off, especially if artificial intelligence (AI) spending cools.
However, these deals also de-risk the company's investments in expanding its nuclear capacity. Constellation shouldn't be viewed as another boring utility stock but as a prime enabler of infrastructure for AI data centers. It expects more than 20% EPS growth through 2029, and based on its first-half earnings, is delivering on that forecast.
