Constellation Energy’s Bold Move: Aiming for Future Growth in Clean Energy

Constellation Energy’s Acquisition Sparks Interest

Chicago, IL – January 14, 2025 – Today, Zacks Investment Ideas feature highlights Constellation Energy CEG, Microsoft MSFT, Nvidia NVDA and Meta META.

Constellation Energy: A Leading Stock in AI and Nuclear Power for 2025

Constellation Energy, a leader in nuclear power, surged an impressive 25% to reach all-time highs on Friday after announcing its acquisition of Calpine, known for its natural gas and geothermal energy production.

This strategic acquisition positions Constellation as the largest clean energy company in the nation, enhancing its reputation as a strong long-term investment in energy and artificial intelligence markets.

With a Zacks Rank #2 (Buy), CEG has outperformed major tech AI stocks over the past few years, including Nvidia, and shows promising potential for further gains as 2025 begins.

Constellation Energy: A Reliable Long-Term Investment

As the largest operator of nuclear power plants in the U.S., Constellation Energy oversees over 20 reactors distributed around the Midwest, Mid-Atlantic, and Northeast. Its stock performance has been remarkable, increasing by 475% in the last three years, far outpacing Nvidia.

Nuclear energy is becoming increasingly vital in the shift towards a high-demand, energy-efficient economy, especially as the U.S. pivots away from coal. The government’s renewed commitment to nuclear energy is helping drive interest in Constellation’s stock.

Federal support aims to triple nuclear energy capacity by 2050. Nuclear power is now considered the most reliable source of clean energy, offering baseload power that is significantly more stable than wind and solar energy.

In 2024, nuclear energy was the largest source of clean energy in the U.S., responsible for about 20% of annual electricity output since 1990. Countries like China and India are investing heavily in nuclear to strengthen energy independence and support their growing economies.

On the financial front, Constellation raised its dividend by 25% in 2024, surpassing its annual growth target. The company aims to extend the lifespan of its nuclear facilities, reopen retired plants, and explore new technologies.

In November, Constellation projected long-term earnings per share (EPS) growth thanks to the Nuclear Production Tax Credit, forecasting a 66% increase in 2024 and a further 10% in 2025. Over recent years, the company has focused on acquisitions and enhancing shareholder value.

Calpine’s Role in AI-Driven Energy Needs

As artificial intelligence applications demand more energy, generative AI models can consume significantly more power than conventional web searches. Some AI data centers use as much electricity as entire midsize cities.

Projections show that capital expenditures for major tech companies are expected to hit $250 billion in 2025, with Microsoft set to invest $80 billion on AI data centers this year alone. Constellation solidified the case for nuclear energy when it secured a 20-year power purchase agreement with Microsoft in September, while other tech giants like Alphabet, Amazon, and Meta also made substantial nuclear deals in 2024.

Utilities are projected to increase their capital expenditures to unprecedented levels from 2025 to 2027 to keep up with rising energy demands.

Furthermore, Constellation announced on January 2 that it secured contracts worth over $1 billion from the U.S. General Services Administration to supply power and support energy-saving initiatives across more than 13 government agencies.

This past Friday, Constellation revealed a $26.6 billion deal to acquire Calpine, further solidifying its presence as one of the largest electricity generators in the country.

Calpine specializes in generating electricity from natural gas and geothermal sources, with a capacity of around 27,000 megawatts — enough to power about 27 million homes. As the U.S. transitions away from coal, natural gas will remain crucial for maintaining grid stability.

With this acquisition, Constellation expands its operations into energy-hungry states like Texas and California, which are key markets for clean technology.

“Both companies share a commitment to cleaner, more reliable energy, which will guide our investments in existing and new technologies to meet growing demand,” noted Constellation CEO Joe Dominguez.

The transaction is expected to finalize within a year.

Is CEG Stock on the Brink of a 2025 Surge?

Constellation’s stock has experienced a phenomenal increase of 475% over the last three years, outperforming Nvidia, Meta (85%), and Microsoft (33%). Over the past year alone, CEG soared 170%, including the recent 25% jump.

The stock surpassed its early October highs, resembling its surge back in September following the Microsoft agreement that broke past May levels.

Some investors might prefer to wait for a potential price correction before purchasing CEG, as it may appear overbought after its recent spike. Nevertheless, CEG’s 1.5 price/earnings-to-growth (PEG) ratio presents a discount compared to the S&P 500 (1.8) and its industry average (1.6), despite its impressive performance.

Rising earnings forecasts have earned Constellation a Zacks Rank #2 (Buy). The recent merger not only combines two key players in the electricity sector but positions Constellation favorably as tech giants vie for the power necessary to expand their AI ventures, projected to be worth trillions.

Ultimately, Constellation Energy stands out as a promising dividend investment within the evolving landscape of energy and artificial intelligence.

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