Benefits and risks of investing in nuclear energy stocks
While nuclear energy offers tremendous potential, it's historically been a perilous investment. The upsides are enormous, but so are the downsides. Here are some of the benefits.
- Massive expansion of data centers: Given the vast amounts of electricity needed to power data centers, tech giants are turning to nuclear power as a potential source of baseload power.
- Government support: The volatility of fossil fuels and skepticism about renewable energy have increased federal support for nuclear power in the United States, especially when it involves obtaining permits that once took years.
- Diversification: Nuclear energy investments aren't limited to developers of massive reactor projects. Exchange-traded funds offer investors the opportunity to diversify their holdings through uranium miners, utilities, and technology companies.
That said, there are significant risks:
- Cost: The average cost overrun of a new nuclear reactor exceeds 100%. The newest U.S. reactor, Plant Vogtle, was finished in 2023 -- seven years late and $17 billion over budget.
- Speculative valuations: Companies like NuScale and Oklo have attracted attention for innovative reactor designs but remain years away from building a functioning plant.
- Regulation: While the current regulatory environment favors nuclear projects, the pendulum can quickly swing the other way. After the 2011 Fukushima Daiichi meltdown, Japan shut down all 54 of its reactors for four years.
The five companies discussed here are all deeply embedded in the nuclear industry. All are publicly traded, with market capitalizations ranging from $2.8 billion for a relative newcomer like NuScale to $290 billion for industry titan GE Vernova.
While market capitalization was an important factor in their selection, attention paid to the effects of artificial intelligence on the planet's electricity grid was also a major consideration. As AI develops, the need for dispatchable -- always available -- power for data centers will continue to soar. Although they're more expensive and take far more time to build, nuclear plants are expected to be part of the solution.
Finally, all five companies are involved in developing small modular reactors, which are viewed as a potential solution to one of nuclear energy's most perennial and thorny problems: the cost of construction and the time it takes to bring nuclear power plants online.
The bottom line
After decades out of favor, nuclear energy is popular again. And that's likely to be good for the world, since more low-carbon energy should lead to more economic opportunity, a better environment, and better health outcomes for billions of people. Nascent technologies like small-scale reactors might be appealing, too.
But before piling into nuclear energy stocks, make sure to check your biases and your reasoning. Nuclear energy is a cyclical industry that's come back into favor, so the headlines (and message boards) can make it feel like a can't-miss opportunity.
But that's far from the reality; while the secular trends look favorable, today's profits can turn into losses quickly. So step lightly and consider the risks before you buy.
