Nuclear Power’s New Frontier: Small Modular Reactors and Data Centers

Last month, utility company Constellation Energy announced plans to restart one of the two mothballed nuclear reactors at Pennsylvania’s Three Mile Island power facility. This move comes as the world faces an increasing demand for electricity, and nuclear energy presents a timely, cost-effective solution.

Data Centers Drive Demand for Nuclear Energy

A noteworthy detail in Constellation’s press release is that the electricity generated will primarily be directed to AI data centers operated by software giant Microsoft. This highlights the growing energy needs of these facilities, which are known to consume vast amounts of power. According to Goldman Sachs, the power consumption of data centers is expected to increase by 160% between now and 2030, indicating that this is just the beginning of a significant trend.

The restart of the 800-megawatt reactor at Three Mile Island is viewed as a temporary fix. The future of nuclear energy appears to be leaning toward small modular reactors (SMRs)—essentially smaller and more manageable nuclear plants designed to be built close to where the electricity will actually be used, reducing the reliance on the larger power grid.

Small Modular Reactors Gaining Momentum

Recent announcements from companies like Alphabet and Amazon, expressing intentions to purchase electricity from small modular reactors, illustrate the growing excitement around this technology. Industry research group Wood Mackenzie estimates that SMRs under construction can eventually generate over 22 gigawatts of electricity, enough to power more than 16 million homes—or several data centers.

The market for SMRs is projected to boom. According to IDTechEx, the annual SMR market could reach over $72 billion by 2033, eventually growing to $295 billion by 2043, amounting to a remarkable annual growth rate of 30%.

A backdrop of increasing emphasis on carbon-neutral power plays in favor of nuclear energy. Although nuclear has experienced setbacks due to past accidents, modern reactor designs promise both safety and efficiency. Furthermore, SMRs can be used for localized energy production at various facilities, such as mining operations or refineries, which contributes further to their appeal.

Investing in Upcoming Opportunities

As the demand for nuclear energy rises, particularly for uranium-238, forecasts suggest that global uranium consumption will increase by nearly 3% annually through 2035, according to BMO Capital Markets. This demand, coupled with a tightening supply, is likely to drive uranium prices higher.

Publicly traded uranium mining companies include Uranium Energy (NYSEMKT: UEC) and Australia’s BHP Group Limited. However, Cameco (NYSE: CCJ) stands out due to its status as a major supplier of high-grade uranium, reporting $2.6 billion in nuclear fuel sales last year and a net income of $339 million.

The development of small modular reactors also presents a significant investment opportunity. Companies like Nano Nuclear Energy (NASDAQ: NNE) and Oklo (NYSE: OKLO) are making strides in the SMR field, while NuScale Power (NYSE: SMR) is positioned as a frontrunner, actively pursuing the commercialization of its designs.

Despite setbacks last year, when a planned SMR project in Utah was canceled, NuScale continues to work on several other initiatives both domestically and internationally, demonstrating resilience in the face of challenges.

Balancing Potential Rewards with Risks

It’s important to acknowledge the risks associated with small modular reactors. While nuclear energy has a long history, the technology behind SMRs is still relatively new. Some potential partners may hesitate until there is more evidence of success, which could slow adoption rates. Currently, NuScale is the only company with an SMR design approved by the U.S. Nuclear Regulatory Commission, but this 50-megawatt reactor is not the larger 77-megawatt model they hope to produce. Final approval for that design may not arrive until mid-2025, which introduces uncertainty into the investment narrative.

However, waiting for total reassurance may also mean missing out on lucrative opportunities. Entering the market early, while prospects are still forming, allows investors to capture potential gains before these opportunities become obvious to the wider audience.

In an industry that is constantly evolving, new players may emerge, so keeping an eye out for fresh developments is wise.

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*Stock Advisor returns as of October 14, 2024

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. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, and Goldman Sachs Group. The Motley Fool recommends Cameco and NuScale Power. 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.