AI is a groundbreaking technology. It can significantly increase productivity and reduce costs. That is driving companies to pour billions of dollars into purchasing AI chips to train models and power applications.
The AI ​​investment frenzy has increased semiconductor stocks like it Nvidia. However, chip sellers are not the only ones benefiting from the AI ​​boom. One potential beneficiary that could come as a surprise is Constellation Energy (NASDAQ: CEG). The leading one nuclear energy producer Shares have risen more than 140% over the past year. Here is take a look at What’s fueling that rally and or power producer Stocks can continue to rise.
AI needs data and current
AI applications have a number of important requirements. They need a huge amount of data to train AI models and a huge amount of power to run the specialized chips developed by companies like Nvidia. These catalysts are driving growing demand for data centers to house AI servers and processes.
Data centers are energy-hungry facilities. They consume 10 to 50 times as much energy per floor area as a typical office building. Meanwhile, AI data centers use even more power. For example, a generative AI search uses four to five times more computing power than a standard search. That drives the vision that AI could cause a more than 160% increase in demand for data center power by 2030, taking their consumption from 1%-2% of global usage to 3%-4%.
This increase in demand for energy comes at a time when the world is already in a race to switch from fossil fuels to lower-emission alternatives. It could accelerate the already robust demand for renewable energy sources. renewable energy can not bear this whole burden alone. More intermittent energy sources such as wind and solar will need help from baseload energy producers such as natural gas and nuclear energy.
That is where Constellation Energy plays a role. Are the country largest producer of carbon-free energy, mainly due to its world-leading nuclear fleet. The company could benefit from increasing demand for nuclear energy to power data centers in the coming years. That has helped fuel his massive rally over the past year.
Strong growth ahead
Constellation Energy is working to harness the AI ​​power possibility. The company CEO Joseph Dominguez recently said the following:
Goods in advanced conversations with multiple customers, large — well-known companies that you all know — about meeting their needsS… While goods not finished However, I do expect that we will conclude agreements that will have long-term transformative value.
Signing power purchase agreements with major tech companies to power their AI data centers would give Constellation increasing amounts of visible revenue from its existing plants, adding to the company already robust earnings growth prospects. Constellation Energy expects to grow its core revenues by more than 10% annually through 2028.
That prospect too doesn’t include new expansion opportunities that could emerge as AI accelerates power demand. Constellation Energy would be extra opportunities to invest in sustainable energy and storage projects. It could also open up new opportunities for nuclear energy investments. For example, the company is look into adding new small modular reactors and other technologies to deliver more baseload energy to data centers.
Take a look at What’s left in the fuel tank
Although Constellation Energy has a lot of growth potential, does not do necessarily means it will have enough power to continue its rally. Shares of the lower carbon energy producer are currently trading at a future price/earnings ratio ratio of more than 28.5 times. That is quite expensive, especially for a utility stock. It is trading closer to the level of the fast growing one Nasdaq-100 index (almost 29 times the forward price/earnings ratio). That is much more expensive than the broader market (the S&P 500‘S (forward price/earnings ratio is about 22 times) and other large utilities (they trade at 15 to 22 times forward price/earnings ratio, although they are growing slower than Constellation at a growth rate of about 5%).
The current AI craze could continue to boost Constellation Energy’s stock, especially if it signs contracts to supply nuclear power to AI data centers. However, it’s trading at a high valuation. If AI power contracts are therefore not realized or It hits An unexpected speed bump could quickly cool stocks. That is why investors could want Put Constellation Energy on their watchlist for now and consider another utility with AI-based growth potential instead.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Constellation Energy and Nvidia. The Motley Fool has a disclosure policy.
AI’s growth potential has helped fuel a more than 140% rally for this surprising stock. Does it still have fuel to keep going higher? was originally published by The Motley Fool
