As Cloud Computing Giants Turn to Nuclear Power, Is Now the Time to Buy Cameco?

Thanks to the emergence of artificial intelligence (AI), cloud computing companies have increasingly been turning their attention toward nuclear power. And with nuclear power comes the need for more uranium.

Let's take a closer look at what is going in the nuclear power sector and how this could impact uranium miner and nuclear service provider Cameco (CCJ -0.17%).

AI and nuclear power

As major tech companies rush to build AI-focused data centers, they are left with the need of finding cheap and reliable power sources, because AI training and inference use a massive amount of energy. Two of the best sources for this power come from natural gas and nuclear energy.

Until last year, when a Georgia nuclear plant commenced operations, there had not been a nuclear power plant built from scratch in the U.S. in over 30 years. It was the first nuclear reactor start-up since 2016. The project was delayed by seven years and well over budget, which shows the struggles of getting nuclear power up and running in the U.S.

However, with AI's massive power needs, companies have been turning more attention to nuclear energy. In March, Holtec International received a conditional commitment for a loan guarantee of up to $1.5 billion from the Department of Energy (DOE) to help it recommission a nuclear power plant in Michigan. The plant was shut down in 2022 by Entergy and sold to Holtec, which had planned to decommission it. But with growing power needs, the company is now looking to restart it.

Meanwhile, last month, Microsoft signed a long-term deal with Constellation Energy to restart the infamous Three Mile Island nuclear plant in Pennsylvania. The deal spans 20 years with the plant expected to open in 2028 to help power Microsoft's data centers. Three Mile Island was the site of the worst nuclear accident in U.S. history, when one of its reactors experienced a meltdown in 1979. The plant's other reactor was shut down in 2019 and is the one that will be restarted.

Not to be outdone, Alphabet recently signed a deal with engineering company Kairos Power to purchase electricity from the advanced small modular reactors (SMRs) it is developing. The plan is to have the first SMR up and running in 2030. SMRs are about a third of the size of the average nuclear reactors currently in the U.S. While there are currently no SMRs operational in the U.S., there are two operating in China and Russia, as well as one test SMR running in Japan.

Image source: Getty Images.

Cameco is a nuclear beneficiary

As AI helps draw renewed interest in nuclear power, one company that should be set to benefit is Cameco. The company owns stakes in three tier 1 uranium mines, as well as a 49% interest in Westinghouse Electric Company, which provides mission-critical technologies and services that are used in the nuclear power sector.

One way increased interest in nuclear power should benefit Cameco is through higher uranium prices. While there is no official uranium exchange like there is for some other metals such as gold, silver, and copper, the prices for uranium have made some big moves in the past 15 years or so. Spot prices crashed from about $140 in 2007 to about $20 to $25 a pound after the Fukushima nuclear disaster in Japan back in 2011, as many countries curtailed their nuclear ambitions.

However, prices had been increasing even before the advent of the AI data center buildout, as future demand is set to increase with nearly 60 new nuclear power plants set to come online by 2030, mostly in Asia. At the same time, low prices resulted in high-cost mines being shut down and exploration projects canceled, decreasing supply.

After hitting over $100 a pound earlier this year, spot uranium prices were down to under $80 a pound at the end of August, and have settled around $80 a pound since. However, even before the Alphabet announcement, analysts were turning bullish on uranium prices, with Bank of America predicting prices would hit $135 a pound in 2026.

Cameco generally sells its uranium production under long-term contracts, so a big jump in spot prices is not going to have a huge impact on its near-term results. For example, the company estimates that if prices move to $120 in 2026 its realized price would be around $70 a pound, compared to $67 a pound if prices remained around $80 a pound. As time moves on, though, more contracts will roll off and it will receive a higher realized price. Higher prices also make its uranium reserves more valuable.

At the same time, the company's Westinghouse business should benefit as new reactors come online and as companies start to look to recommission reactors that were previously shuttered. This business has a large recurring component and looks like it was a solid acquisition.

With more nuclear reactors set to come online over the next decade and cloud computing companies looking toward nuclear energy, Cameco looks like a solid investment option to play this trend over the long term.