Coatue Management’s Bold Bet on Constellation Energy: A Data Center Opportunity

Philippe Laffont, a billionaire investor and the founder of Coatue Management, is making headlines with the hedge fund’s latest quarterly trading report, known as the 13F. While wealthy investors often operate behind closed doors, this report reveals the stocks major financial institutions are buying and selling each quarter.

Coatue’s recent 13F highlights significant trades in leading technology stocks, particularly those aiming to innovate in artificial intelligence (AI). Among these transactions is a notable investment in a largely overlooked data center opportunity. Interestingly, there is more to data centers than just Nvidia.

In the following analysis, we will delve into the data center stock that has caught Coatue’s attention and evaluate if now is the right time to consider purchasing it.

Coatue Management’s Latest Purchase: Constellation Energy

According to its latest 13F filing, Coatue acquired 2.9 million shares of Constellation Energy (NASDAQ: CEG) in the second quarter, marking a 139% increase in their position.

It’s understandable if you’re surprised that a utility company is viewed as a data center play. Data centers consume significant amounts of electricity. As AI technology accelerates across various industries, businesses must invest in more energy-efficient infrastructure.

This is where Constellation Energy becomes essential. The company focuses on nuclear power, which many consider a more effective alternative to conventional energy sources used by data centers.

Image source: Getty Images.

Major Developments in Nuclear Power

This year, big tech companies have been quietly investing at the crossroads of nuclear power and data centers. In March, Amazon‘s cloud division, Amazon Web Services (AWS), bought a nuclear-powered data center from Talen Energy. Recently, Amazon also entered agreements with Energy Northwest and Dominion Energy to explore how small modular reactors (SMRs) could support these projects.

Similarly, Alphabet is working with Kairos Power to develop SMRs, highlighting a trend among tech giants. However, Constellation Energy is not behind the curve; it collaborates with Microsoft, with both companies recently announcing plans to revive a nuclear facility at Three Mile Island in Pennsylvania.

Evaluating Constellation Energy’s Investment Potential

The following chart depicts trends in Constellation’s price-to-earnings (P/E) ratio over the past six months.

CEG PE Ratio data by YCharts.

Constellation has seen notable valuation growth recently. Since the Three Mile Island deal announcement on September 20, its shares surged by as much as 12%, a significant jump based purely on news coverage.

While timing investments is challenging, keen investors should approach Constellation with caution at this juncture. The recent activities of Amazon and Alphabet with nuclear power companies coincide closely with Microsoft’s partnership with Constellation.

As more companies consider nuclear solutions for their data center operations, Constellation could gain momentum from any related developments, directly or indirectly affecting its stock performance.

The AI narrative is still developing. Therefore, as demand for data centers and associated nuclear power solutions grows, the long-term outlook remains promising.

Although Constellation Energy shares might seem expensive right now, Coatue’s investment reflects strategic thinking. For investors with a long-term vision, it may be wise to keep an eye on this stock.

Is Investing $1,000 in Constellation Energy a Smart Move?

Before making an investment in Constellation Energy, consider this:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is on The Motley Fool’s board of directors. Likewise, Suzanne Frey, an executive at Alphabet, also serves on this board. Adam Spatacco has investments in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Constellation Energy, Microsoft, and Nvidia. It also recommends Dominion Energy and includes options for Microsoft in its recommendations. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.