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