Nuclear Energy Gains Traction as AI Fuels Electricity Demand

Artificial intelligence (AI) is driving up electricity demand, making nuclear energy a more attractive option. Recently, the three major cloud computing companies have committed significant investments in nuclear power.

Major Investments in Nuclear Power

Microsoft led the charge by signing a 20-year power purchase agreement with Constellation Energy, allowing them to restart the Three Mile Island nuclear facility to supply power for Microsoft’s data centers. Meanwhile, Alphabet and Amazon are opting for small modular reactors (SMRs), which are smaller than traditional nuclear reactors and provide greater flexibility. Although there are no operational SMRs in the U.S. currently, both China and Russia have already deployed them successfully.

This growing enthusiasm for nuclear power will lead to higher demand for uranium. A prime opportunity for investors looking to capitalize on this trend is Cameco (NYSE: CCJ).

Image source: Getty Images.

Current Uranium Market Conditions

Despite a positive long-term outlook, uranium prices have fallen approximately 40% from their February 2024 levels. This decline is partially attributed to rising tensions between the U.S. and Canada, which is the largest supplier of uranium to the U.S., providing around 27% of its total supply in 2023.

Cameco, the world’s second-largest uranium miner, has seen its stock price drop in light of these pressures. However, it should be noted that the company sells uranium through long-term contracts at pre-arranged prices. Over the next five years, it has secured commitments to sell an average of 28 million pounds of uranium annually, with a total contracted volume of approximately 220 million pounds.

Uranium Production and Assets

Cameco is well-positioned in the uranium market, owning interests in two Tier-1 uranium mines in Canada and another in Kazakhstan. Its Canadian operations have a combined capacity of 43 million pounds per year, with McArthur River Key Lake producing 25 million pounds and Cigar Lake producing 18 million pounds. In Kazakhstan, Cameco holds a 40% stake in the Inkai mine, which has a capacity of 10.4 million pounds. The company also possesses various uranium-related assets including refiners and conversion facilities.

In 2024, Cameco delivered just under 34 million pounds of uranium and produced about 23.4 million pounds. It aims to produce 18 million pounds each from its McArthur River Key Lake and Cigar Lake mines in 2025. Discussions are ongoing with its partner, Kazatomprom, regarding the 2025 production allocation for the Inkai mine, which has faced challenges due to supply chain issues in Kazakhstan.

Cameco does not anticipate that a potential 10% tariff will significantly impact its financial results in 2025. Historically, non-tariff countries tend to raise prices due to inelastic demand for uranium. Additionally, Cameco is acquiring new customers in Central and Eastern Europe, expanding its market reach.

Future Demand and Market Dynamics

Another factor contributing to the decline in uranium prices is the possibility of lifting sanctions on Russia. While Cameco believes such a development would take time, the U.S. and other nations are reluctant to become dependent on Russian uranium and low enriched uranium (LEU). Although Russia is the sixth-largest uranium miner, it only provides about 5% of worldwide production. However, the state-owned Rosatom leads in uranium enrichment, having been the largest supplier of enriched uranium to the U.S. commercial sector in 2022 and 2023.

Despite the current downturn, Cameco maintains that there is a considerable structural deficit in the uranium market due to surging demand. This context suggests that future demand from ongoing projects may lead to price increases. Additionally, Cameco’s existing contracts and business strategy position it well for when new projects go live.

Is Cameco Stock a Good Investment?

Even with recent stock price weaknesses, Cameco represents one of the better options for investors interested in the long-term nuclear energy trend. Its long-term contracts offer stability in the short term, while the potential for significant growth looms in the coming years. The company’s valuable Tier-2 mines and assets are likely to appreciate during periods of high uranium prices.

Investors may find Cameco to be an appealing buy at current levels, considering its long-term outlook. It is important to focus on the long horizon with the uranium market rather than short-term fluctuations.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends Cameco, Constellation Energy, and Dominion Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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