Constellation Energy Corp. (CEG) is an Artificial Intelligence (AI) infrastructure power play and the largest owner of nuclear power plants in the US. Based on forward earnings expectations, the stock is priced well below high-profile AI stocks, providing an attractive risk/reward profile and thus a more conservative play on AI trends, suggests Carl Delfeld, editor of Cabot Explorer.
CEG is both a regulated utility and one that sells power on the wholesale market. Importantly, this means Constellation operates in the unregulated price utility market so it can charge any rate the market can bear. While data and semiconductor chips are often thought of as the most important AI fuel, the tech industry has a nearly infinite demand for 24-hour-a-day power for AI data centers.
The US has added only three new, big nuclear reactors since the 1990s. But the tide has turned as demand for more output and lower prices at home has soared. In addition, China has become a leader in nuclear technology, with about 100 nuclear power plants in their pipeline.
Constellation currently owns and operates 21 nuclear reactors as well as hydro and wind power facilities. Furthermore, an impending all-stock acquisition deal with Calpine will add geothermal and natural gas to the menu. When this deal is completed, Constellation will have the capacity to provide electricity to about 40 million homes.
Highlighting bipartisan support for more safe nuclear power, the Department of Energy is approving a $1 billion federal loan to restart the Three Mile Island nuclear power plant in Pennsylvania that suffered a partial core meltdown in 1979.
Constellation’s latest quarterly earnings demonstrated fundamental momentum, with adjusted operating earnings hitting $1.91 per share, up 20%.
Recommended Action: Buy CEG.
