Bill Gates and his energy company, TerraPower, are spearheading a significant advancement in nuclear energy by starting construction on a next-generation nuclear power plant in Wyoming. Gates, who is also the co-founder of Microsoft ($MSFT(MSFT)), believes this project will revolutionize power generation. The groundbreaking took place in the small community of Kemmerer, where Gates emphasized the transformative potential of the new technology. TerraPower applied for a construction permit from the Nuclear Regulatory Commission (NRC) in March for an advanced nuclear reactor that uses sodium for cooling instead of water. If approved, this reactor will operate as a commercial nuclear power plant, promising a new era of safer and more efficient nuclear energy. The Wyoming site, located adjacent to PacifiCorp's Naughton Power Plant, which is set to cease coal and natural gas operations in the coming years, is being prepared to quickly commence construction upon permit approval. This initiative is part of a broader strategy to meet rising energy demands with zero-carbon solutions. Gates' involvement and advocacy for advanced nuclear technology could play a crucial role in overcoming regulatory and public perception barriers, driving the acceptance and expansion of nuclear energy as a key component of the global energy mix. This project, supported by both private investment and public funds, marks a pivotal moment in the quest for sustainable energy solutions. AI's demand for energy The news comes at a critical time as the surge in energy demand due to the growth of artificial intelligence (AI) is expected to be significant. AI applications, especially those involving large-scale machine learning models and data processing, require substantial computational power, which in turn drives up energy consumption. Data centers were already experiencing a significant rise in energy consumption prior to the surge in generative AI interest. From 2012 to 2023, the power demand from data centers grew at a compound annual growth rate (CAGR) of 14%, vastly outpacing the 2.5% growth in overall electricity demand. This increase was driven by heightened data generation, data analysis, and the shift to cloud computing as businesses migrated their data storage and computing power to data centers. The advent of AI is set to further escalate this power requirement, as training AI models uses six times more energy than non-AI computational tasks, and even during the inference phase, AI models consume two to three times more energy than traditional workloads. Training AI models, particularly deep learning models, requires high-performance computing (HPC) resources. These HPC systems are extremely energy-intensive. For example, training a single large AI model can consume as much electricity as the average American household uses in a year. As AI technology becomes more prevalent across various industries—such as healthcare, finance, automotive, and manufacturing—the energy required to power these AI systems will increase correspondingly. Gartner predicts that by 2025, AI will be embedded in nearly every new software product and service, further driving energy consumption. This might be why Sam Altman, CEO of OpenAI, has referred to energy as the hardest part of meeting the computational demands of AI. Renewable energy sources like wind and solar are essential to meet the rising demand for computing power while countries strive to achieve the Paris Agreement's targets for reducing greenhouse gas emissions. Major tech companies are also pursuing ambitious decarbonization goals. Google aims to use only carbon-free energy 24/7 by 2030, while Amazon plans to power its operations with 100% renewable energy by 2025 and achieve net-zero carbon emissions by 2040. Meta (Facebook) has reduced its greenhouse gas emissions by 94% since 2017 by using 100% renewable energy for its data centers and offices. Microsoft plans to match its electricity consumption with zero-carbon energy by 2030 and remove all the carbon it has emitted since its founding by 2050. Apple operates all its global facilities with 100% renewable electricity, with 90% coming from renewable sources it has developed through long-term power purchase agreements and direct ownership of renewable energy facilities. However, Data centers are highly energy-intensive and operate continuously, making it impractical to power them solely with intermittent renewable sources like wind and solar, even with battery storage due to costs, limited lifespans, and inefficiencies. Hydro could serve as alternatives to fossil fuels, but hydro faces geographical limitations. Currently, natural gas is the most viable option to supplement renewable sources, as it provides on-demand energy and is cleaner than coal-fired plants. This makes natural gas a crucial component in the transition to a more sustainable energy mix. In response to these challenges, hyperscalers are exploring alternative solutions, such as acquiring captive, off-grid power sources. For instance, Amazon ($AMZN(AMZN)) recently purchased a data center in Pennsylvania that is powered by a nearby nuclear power station. Nuclear energy companies are poised to benefit significantly from the rising demand for data centers, driven by tech giants like Amazon and Microsoft, which are increasingly turning to nuclear power for reliable, carbon-free electricity. Microsoft's strategic shift towards nuclear energy is highlighted by its appointment of Erin Henderson as Director of Nuclear Development Acceleration, focusing on integrating small modular reactors (SMRs) and microreactors into its power systems to meet growing energy demands, particularly from AI technologies. This trend of tech companies investing in nuclear power for a stable and sustainable energy supply positions companies like Talen Energy and Constellation Energy to provide the necessary infrastructure and expertise to support these high-energy-consuming facilities. Companies to Watch A Small Modular Reactor (SMR) is a type of nuclear reactor designed to be smaller and produce up to 300 megawatts of electricity (MWe), about one-third of the capacity of traditional reactors. SMRs offer several advantages, including modularity, which allows for factory manufacturing and streamlined on-site assembly, potentially reducing costs and enabling scalability. Their advanced safety features, such as passive safety systems, and the ability to deploy in a wider range of locations, including remote areas, make them flexible for various applications like district heating and industrial processes. Additionally, SMRs have a reduced environmental footprint and can be integrated into existing power grids with minimal disruption. Many companies and countries are investing in SMRs for their potential to provide reliable, low-carbon energy that complements renewable sources like wind and solar. Notable SMR designs include the NuScale Power Module, GE Hitachi's BWRX-300, and Rolls-Royce's SMR design. SMRs are viewed as a promising solution for future energy needs, addressing climate change and energy security concerns, though they are still in developmental and regulatory stages with widespread commercial deployment anticipated in the coming years. Here is a list of companies that are involved in SMRs and nuclear power that could see a boost from the increase in demand: - Talen Energy (TLNE): Recently sold its nuclear-powered data center campus in Pennsylvania to Amazon Web Services (AWS) for $650 million, allowing Amazon to utilize up to 960 megawatts (MW) of clean energy from the Susquehanna Steam Electric Station. - Constellation Energy ($CEG(CEG)): The largest provider of carbon-free energy in the U.S., has entered into a significant agreement with Microsoft to supply up to 35% of its Boydton, Virginia, data center's power needs through nuclear energy, aiming for 100% carbon-free electricity. - NuScale Power ($SMR(SMR)): A key player in the small modular reactor (SMR) space, NuScale has developed a scalable and safe modular light-water reactor. Trades on NASDAQ under the ticker SMR. - Fluor Corporation ($FLR(FLR)): A global engineering and construction firm with a significant investment in NuScale Power, actively involved in the development of SMRs. Trades on NYSE under the ticker FLR. - BWX Technologies, Inc. ($BWXT(BWXT)): Engaged in the design and manufacturing of nuclear reactors and fuel, BWX Technologies is a key player in the development of SMRs. Trades on NYSE under the ticker BWXT. - General Electric ($GE(GE)): Through its GE Hitachi Nuclear Energy division, GE is developing the BWRX-300 SMR, aiming for cost-effectiveness and efficiency. Trades on NYSE under the ticker GE. - Rolls-Royce Holdings plc (RR.L): Developing its own SMR design to provide low-cost nuclear power solutions, Rolls-Royce is making significant strides in the nuclear sector. Trades on the London Stock Exchange under the ticker RR.L. Risks to Nuclear Power Using nuclear power to energize data centers presents several risks that require careful consideration. Safety concerns persist despite advanced technology, as rare but catastrophic accidents like Chernobyl and Fukushima illustrate. Public opposition, driven by safety fears and nuclear waste concerns, can delay projects and increase costs due to regulatory compliance. High initial costs and long development timelines further challenge the feasibility of nuclear power for rapidly expanding tech needs. Nuclear waste management, geopolitical and security risks, regulatory hurdles, supply chain issues, limited operational flexibility, and the environmental impact of uranium mining are additional factors that complicate the adoption of nuclear energy. These risks must be managed through advanced technologies, robust safety protocols, and comprehensive regulatory frameworks to make nuclear power a viable and safe option for data centers. Conclusion Increasing power generation and transmission capacity in a timely manner while managing the stability of electrical grids presents significant challenges that could slow the buildout of data centers and the spread of AI-enabled solutions. Existing data centers already strain grid networks, causing some operators to pause new additions, as seen in Ireland, the Netherlands, and Singapore, where restrictions or moratoriums on new data center construction have been implemented. Supply chain issues, such as a shortage of transformers needed for voltage adjustment, further complicate the expansion efforts, with procurement times doubling over the past year. Additionally, connecting new renewable power generation to the grid faces delays due to lengthy grid connection queues and extended timelines for adding transmission lines, potentially taking six to eight years for a renewable power plant to become operational. In response, hyperscalers are exploring alternative solutions, such as acquiring captive, off-grid power sources exemplified by Amazon's recent purchase of a Pennsylvania data center powered by a nearby nuclear station. We would recommend reviewing the names listed for potential long-term investment opportunities as the world looks for ways to keep up with its insatiable demand for energy.