Nuclear energy stocks have become a favorite of Wall Street this year as the artificial intelligence boom spreads and Big Tech searches for ways to meet its growing power demand.
They helped power the S&P 500’s Utilities index (XLU) to all-time highs — the index is on track to outperform the S&P 500’s equal-weighted counterpart (^SPXEW) in 7 of the past 10 months, according to data compiled by Bloomberg. And Vistra (VST), a nuclear power company, recently surpassed Nvidia (NVDA) as the biggest gainer in the S&P 500 (^GSPC) year to date.
Big Tech firms, including Amazon (AMZN), Microsoft (MSFT), and Google (GOOG), drove the gains, announcing hundreds of millions of dollars in investments in nuclear power names over the course of several weeks.
It’s a story the market ran with. Then came a regulatory wrist slap that briefly stopped the nuclear energy rally in its tracks.
In a 2-to-1 ruling on Nov. 1, the Federal Energy Regulatory Commission (FERC) rejected a request from Talen Energy (TLN) to increase the power it could provide Amazon from its Susquehanna power plant, citing concerns about grid reliability and energy affordability.
Several nuclear energy stocks, including Talen, Oklo (OKLO), Centrus Energy (LEU), Vistra (VST), and NuScale Power (SMR), tumbled the following Monday.
Amazon is expected to petition the decision, according to CFRA analyst Daniel Rich. But for investors, “it certainly is a setback,” Rich said.
Rich explained that co-location agreements have become a major focus for the tech industry, as they allow hyperscalers to buy power directly from an existing energy source for their data centers. This enables them to build more data centers at speed and at lower costs.
But these agreements may be a sticking point for regulators, which is why Big Tech has pursued other strategies, such as creating new sources of nuclear energy through small modular reactors (SMRs).
Though there are currently no SMRs in the United States, companies like Amazon see them as a way to affordably add to the power grid while also meeting the increased energy demands AI requires.
“The order may not represent a long-term risk,” ClearView Energy Partners managing director Timothy Fox told Yahoo Finance. “It’s more that FERC may have punted or didn’t want to set a precedent about co-location until it had firm policy.”
Clay Sell, the CEO of nuclear reactor designer X-energy, told Yahoo Finance that “a significant portion of the increased electricity demand in the US for the next 25 years is going to come from AI.”
