AI is a revolutionary technology. It can significantly improve productivity and reduce costs. It is pushing companies to invest billions of dollars in purchasing AI chips to train models and power applications.
AI investment frenzy has intensified semiconductor stocks as Nvidia. However, the chip sellers are not the only ones to benefit from the AI ​​boom. A potential beneficiary that could be a surprise East Energy of the constellations (NASDAQ: CEG). The first Nuclear power producer The stock has jumped more than 140% over the past year. Here is a glance what is this fueling this rally and if power producer the stock may continue to increase.
AI needs data and power
AI applications have several major requirements. They need a huge amount of data to train AI models and a huge amount of power to run the specialized chips developed by companies like Nvidia. These catalysts drive growing demand for data centers to host AI servers and processes.
Data centers are energy-intensive facilities. They consume 10 to 50 times more energy per floor space than a typical office building. At the same time, AI data centers consume even more energy. For example, a Generative AI The search uses four to five times more computing power than a standard search. This suggests that AI could drive an increase in data center energy demand of more than 160% by 2030, increasing their consumption from 1 to 2% of global usage to 3 to 4%.
This increase in demand for electricity comes at a time when the world is already in full swing to transition from fossil fuels to low-emission alternatives. This could accelerate the already strong demand for renewable energy. renewable energy can’t carry all this load alone. Mr.ore intermittent energy sources like wind and solar will need help from baseload power producers like natural gas and nuclear energy.
It is where Constellation Energy comes in. It is THE country leading producer of carbon-free energy thanks in particular to its leading nuclear fleet. The company could benefit from growing demand for nuclear energy to power its data centers in the coming years. This helped fuel its massive rally over the past year.
Strong growth ahead
Constellation Energy works to capture the power of AI opportunity. THE the society CEO Joseph Dominguez recently stated that:
Were in advanced conversations with multiple clients, large well-known companies that you all know, to meet their needsm… While were not finished However, I expect that we will finalize agreements that will have long-term and transformative value.
Signing power purchase agreements with large tech companies to power their AI data centers would provide Constellation with increasingly visible revenue from its existing plants. This would add to the the society already robust earnings growth prospects. Constellation Energy plans to grow its core profit by more than 10% annually through 2028.
This perspective too doesn’t include new expansion opportunities that could arise when AI accelerates energy demand. Constellation Energy could obtain investment opportunities in renewable energy and storage projects. It could also provide new investment opportunities in nuclear energy. For example, the company is search in adding new small modular reactors and other technologies to help provide more baseload power to data centers.
A glance What is left in the fuel tank
Although Constellation Energy has strong growth potential, it doesn’t This necessarily means that it will have enough power to continue climbing. Shares of the low-carbon energy producer are currently trading at a Forecast P/E ratio of more than 28.5 times. It is quite expensive, especially for a utility stock. It trades closer to the level of fast-growing markets Nasdaq-100 (nearly 29 times the forward P/E). It is much more expensive than the wider market (the S&P 500‘s forward P/E is about 22 times) and other large utilities (they trade between 15 and 22 times forward P/E, although they grow slower than Constellation at an average rate of a number).
The current AI craze could continue to push Constellation Energy’s stock higher, especially if it signs contracts to supply nuclear power to AI data centers. However, the company’s valuation is high. For this reason, if the AI ​​power contracts do not materialize or he shots an unexpected speed bump, stocks could quickly calm down. It is why investors I might like put Constellation Energy on their watch list for the moment and instead consider another utility with AI-powered growth potential.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy and Nvidia. The Motley Fool has a disclosure policy.
The growth potential of AI has contributed to a rally of more than 140% for this surprising stock. Does he still have fuel to continue climbing higher? was originally published by The Motley Fool
