Investing in Nuclear Energy Stocks in 2024

Nuclear energy stocks have become far more compelling to many investors in recent years. Between the implications of climate change, the limits on solar and wind energy and storage technology, the still-high costs of hydrogen energy, and decades of data that support nuclear energy as safe, there are good reasons to support this carbon-free source of energy.

But before jumping into the latest hot nuclear energy stock, it pays to know what you're getting into. In this article, we will break down the nuclear energy industry, opportunities, risks, and what investors need to understand.

About nuclear energy

Understanding nuclear energy

Without diving too deep into the science, nuclear energy, in general, refers to fission. Fission is the process of splitting the nucleus of atoms, releasing significant energy (heat and radiation) that starts a chain reaction, continuing as long as there's fuel.

It's the release of heat in this reaction that's important. A cooling agent -- almost always water -- is heated by fission, and the steam generated by the heat powers turbine generators. That creates electricity.

The fuel for almost all nuclear fission is uranium-235, the isotope that can produce a fission chain reaction. Getting this radioactive material out of the ground and transported safely to customers isn't something just any old mining company does. As a result, most uranium mining companies are fairly specialized.

However, mining is only the first step in getting a product usable by the market. Uranium-235 makes up a tiny portion of the uranium found in nature. More than 99% of the world's supply is uranium-238, which can't produce a fission chain reaction and has to be "enriched" into uranium-235. This is a lucrative business for the small number of companies that do it.

Producing power from nuclear energy also requires a nuclear power plant, called a reactor. There are only a small handful of companies with the expertise and financial strength to deal with nuclear reactors, and almost all are either private, state-owned, or the subsidiary operation of a large industrial conglomerate. These companies generally build the reactors, as well as provide maintenance and other necessary services for the many decades a nuclear reactor is in operation.

Historically, commercial nuclear reactors have been very large in scale to maximize efficiency since smaller-scale reactors could not compete on efficiency. But that's potentially on the verge of change, with newer innovations making nascent small-scale nuclear reactors more compelling.

Looking beyond fission, there have been major advances in nuclear fusion in recent years. Long considered the "holy grail" of energy, fusion is, to quote the International Atomic Energy Agency, "the process by which two light atomic nuclei combine to form a single heavier one while releasing massive amounts of energy."

What makes it so compelling: Fusion could provide -- again, quoting the IAEA -- "virtually limitless clean, safe and affordable energy to meet the world's energy demand." The problem: It's incredibly hard; we are talking about the equivalent of making miniature suns, after all. But the upside is almost immeasurable, and explains why decades of research and virtual mountains of money have been invested in it. Fusion would be significantly safer and cleaner than any other source of energy under humanity's control today. The question we still don't know the answer to is how many more decades before it's more than just an expensive experiment, much less anywhere close to commercially viable.

And we need more clean energy now. Back to fusion. After many years of negative sentiment, nuclear energy is back on the table -- for good reasons, based on its clean-energy bona fides and a safety record that has been marred by a small number of high-profile events but is far safer than many people think.

Up next, let's take a closer look at three top nuclear energy stocks.

Top nuclear stocks

Three top nuclear energy stocks

1. Cameco

One of the few well-established pure-play companies to invest in nuclear energy stocks, Cameco (CCJ -3.13%) is one of the world's largest uranium miners and refiners. This Canadian company's Cigar Lake facility produces the world's highest-grade uranium and has produced more than 105 million pounds since going online in 2015. Its McArthur River/Key Lake was brought back into operation in 2022 after being shut down for several years. Cameco's operations there have produced more than 535 million pounds of uranium from the largest high-grade uranium mine and mill in the world.

Cameco also produces uranium hexafluoride and uranium dioxide, which are used in uranium enrichment and fuel rod production.

Like many other natural resources companies, Cameco is heavily affected by the cyclical pricing of the underlying commodities it produces and sells. As a result of these commodity swings, it can be a very cyclical stock, going through boom-and-bust periods when its earnings can spike and then fall sharply before recovering again. The good news is that despite this cyclical reality, Cameco has a long track record of generating strong positive operating cash flow. It has generated positive operating cash every year since 2010.

At this writing, in August 2024, Cameco's share price is riding high on high uranium prices. Like other cyclical, commodity-price-driven stocks, patience is important, as is paying a reasonable valuation. With a strong record of making money, Cameco is a great business, but investors should make sure to buy shares at a good valuation and not get pulled into overpaying when uranium prices are highest.

2. GE Vernova

General Electric has finally completed its decade-long restructuring. The legacy business was split into its remaining stand-alone entities, with GE Aerospace (GE -2.26%) keeping the stock ticker and CEO Larry Culp, and its energy business now standing on its own as GE Vernova (GEV -4.04%). The new energy-focused company has been good to shareholders so far, and investors interested in nuclear should consider owning it. GE has been in the nuclear power business since the 1950s, and Vernova is one of a handful of companies with significant market share in nuclear reactors.

The spinoff of GE Vernova includes GE's nuclear business, part of its Power segment that also includes its gas, steam, and hydroelectric business, its Wind segment, and its Electrification segment.

There are a few things that make this future GE spinoff a compelling nuclear energy stock. As a starting point, Vernova's allocation of capital as a standalone, energy-focused company should deliver better results. Beyond GE Hitachi Nuclear Energy, the nuclear reactors and services spinoff, investors will also get exposure to GE's leading gas, hydroelectric, and steam power technologies, and its leading onshore and offshore wind energy business. Combined, that's more than $265 billion in global market GE Vernova can serve today.

Part of GE Vernova's growth market includes small modular reactors -- also called SMRs -- that are expected to be an important part of a more decentralized and flexible electric grid That's a diversified business, one that's also targeted squarely at both today's and tomorrow's energy needs.

3. Brookfield Renewable

Like GE, this isn't a pure-play nuclear energy stock. Brookfield Renewable (BEPC -1.1%) owns, operates, and invests in hydroelectric, wind, solar, and energy storage facilities today, but it -- along with a group of institutional investor partners -- owns 10% of Westinghouse, one of the world's largest nuclear services companies.

It is buying Westinghouse from Brookfield Business Partners (BBU -2.21%) -- and no, the name isn't a coincidence. Brookfield Business acquired Westinghouse out of bankruptcy a number of years ago and is ready to move on, while Brookfield Renewable has a long track record as an operator in the renewable energy space.

This is the first move into nuclear energy for Brookfield Renewable, but it's not the first time it has spread its wings and diversified. Historically focused on hydroelectric, it moved heavily into wind and solar in the mid-2010s and has more recently begun investing in energy storage. With nuclear now on the menu, the takeaway is that Brookfield has a long, solid legacy of moving into nascent and formerly out-of-favor technologies when there's a clear path to profits. The latter seems to be the case with its investment in Westinghouse.

It has another big nuclear player in its corner, too. The other 49% of Westinghouse is being acquired by another company discussed here: Cameco.

Investors looking for more pure-play nuclear companies may be disappointed with the Brookfield pick, preferring a company like NuScale (SMR -3.3%), the startup that's trying to take small-scale reactors commercial.

And while NuScale could prove a huge winner, it's still very early in its existence. It went public via a special purpose acquisition company (SPAC) in May of 2022 and isn't likely to have its first "VOYGR" small modular reactor (SMR) power plant fully operational in the U.S. anytime soon. NuScale pulled the plug on its reactor project in Utah in November 2023 and has no new projects announced with a definitive completion date.

Instead of betting on a very unproven "next big thing" so far ahead of commercialization, investors looking to win from nuclear should consider proven winners like Brookfield Renewable first.

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Should you invest?

Should you invest in nuclear energy?

There are certainly reasons why nuclear energy stocks might sound compelling. After decades of being out of favor, nuclear energy is hanging out with the popular kids again. And that's likely to be good for the world since more low-carbon energy should result in 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. As a cyclical industry that's come back into favor, 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 before you can say, "But what about last quarter?" So step lightly and consider the risks before you buy.