AI Fuels Nuclear Energy Boom—But What's Next?"

The rapid growth of artificial intelligence has created an insatiable demand for electricity. As traditional energy sources struggle to keep pace, tech giants are increasingly turning to clean energy solutions, with nuclear power emerging as a key contender.

In October, both Google and Amazon unveiled plans to deploy micro-nuclear reactors to address their AI-related energy needs, while Microsoft had already struck a nuclear energy deal with Constellation Energy earlier this year.

This enthusiasm has translated into significant gains for nuclear energy stocks in 2023. NuScale saw its stock skyrocket by 538%, Oklo—backed by OpenAI CEO Sam Altman—rose 123%, and the newly public Nano Nuclear climbed 99%. Investors in nuclear companies have reaped handsome returns, but many are questioning the sustainability of these gains.

Expert Warnings Amid Market Hype

Josh Wolfe, co-founder of New York-based venture capital firm Lux Capital, which focuses on emerging science and technology, cautions against blind optimism in the nuclear energy sector. Speaking at a private investor event earlier this month, Wolfe listed several nuclear companies, including NuScale, Oklo, and Nano Nuclear, as candidates for short-selling.

While Wolfe is a strong advocate for nuclear power, he views the recent announcements by tech giants like Microsoft, Meta, and Amazon as more symbolic than transformative. These nuclear procurement agreements—spanning 3 to 10 years—are often just a greenwashing tactic to fulfill carbon commitments, Wolfe explained.

He also pointed to Meta's recent RFP (Request for Proposals) for nuclear developers to help meet its AI energy needs as an example of the sector's current optimism.

The Reality of Small Modular Reactors

Wolfe is skeptical about the economic viability of small modular reactors (SMRs), the technology at the heart of the nuclear resurgence. While SMRs represent exceptional engineering and short-term stock success, they lack a solid business model. The gap between promises and real-world progress remains significant, he noted.

Instead, Wolfe advocates for large-scale nuclear plants combined with abundant natural gas reserves, particularly in regions like the Permian Basin, as the more sustainable solution.

Looking ahead, Wolfe predicts headlines like: OKLO Secures Licensing... Begins Site Study... Potential Construction Underway. Amazon Signs Nuclear Deal... Considers Purchases... If [Insert SMR Company Name] Gets Built.

Hedge Funds Bet on Nuclear Energy

The excitement around AI-driven energy demand has not gone unnoticed by major investors. According to a Goldman Sachs report from November, hedge funds poured significant capital into nuclear power producers during Q3, positioning themselves for the anticipated surge in demand. Companies like Vistra and Talen Energy emerged as top picks.

Conclusion

While nuclear energy's role in the AI revolution has sparked a rally in related stocks, experts warn of overhyped expectations and limited short-term feasibility. As the sector navigates the complexities of scaling innovative technologies like SMRs, investors must weigh the potential of groundbreaking advancements against the risks of inflated promises.