• Stock Volatility: Constellation Energy’s stock dropped 12.5% following the FERC’s rejection of a nuclear power agreement, reflecting broader declines in the nuclear sector despite a year-to-date increase of over 90% in its share price.
• Tech Investments: Major tech companies like Microsoft, Amazon, and Google are increasingly investing in nuclear energy to meet the growing demands of AI data centers, with Constellation securing a 20-year deal with Microsoft that significantly boosted its stock performance.
• Regulatory Challenges: The nuclear industry faces substantial regulatory hurdles, including lengthy approval processes by the NRC and public safety concerns, but bipartisan efforts are underway to streamline regulations and support the growth of nuclear energy initiatives.

Constellation Energy’s stock (CEG) experienced a significant decline of 12.5% on Monday, a move that mirrored a broader downturn in nuclear power stocks. This drop was largely attributed to the recent decision by the Federal Energy Regulatory Commission (FERC), which rejected a proposal from PJM Interconnection, a regional grid operator. The proposal aimed to increase the power supply from Talen Energy (TLN) to an Amazon (AMZN) artificial intelligence data center, prompting Talen to express its belief that FERC’s ruling was misguided and to announce it would explore its options for a commercial solution.

In the wake of this news, several other companies in the nuclear sector also saw their stock prices fall. Talen Energy itself dropped 2.2%, while Sam Altman-backed Oklo (OKLO) fell by 2.8%. Centrus Energy (LEU) faced a staggering decline of 28.8%, and NANO Nuclear (NNE) saw a decrease of 12.8%. Other players in the field, including Vistra (VST) and NuScale Power (SMR), also experienced losses of 3.2% and 2.8%, respectively.

Despite this recent downturn, Constellation Energy’s stock remains up more than 90% year-to-date, making it one of the best performers in the S&P 500 (^GSPC). The increased interest in nuclear energy from major technology companies has played a significant role in this growth, as these firms seek sustainable solutions to meet the energy demands of their power-hungry data centers, especially for running generative artificial intelligence software while adhering to climate goals. Amazon, Google (GOOG), and Microsoft (MSFT) have all announced investments in nuclear energy, underscoring the sector’s rising prominence.

In late September, Constellation Energy secured a 20-year deal with Microsoft to supply power to one of its AI data centers. This partnership has contributed to a 36% increase in Constellation’s stock price over the past three months, fueled by the broader trend of Big Tech’s growing commitment to nuclear energy. On the same day as the stock drop, Constellation also reported third-quarter adjusted earnings per share of $2.74, exceeding Wall Street’s forecast of $2.65. Additionally, the company’s quarterly revenue of $6.6 billion surpassed analysts’ expectations of $5.2 billion.

Constellation Energy’s CEO, Joe Dominguez, emphasized the critical role that artificial intelligence and the data economy play in the competitiveness and national security of the United States. He reaffirmed the company’s commitment to contributing positively to this evolving landscape.

However, the nuclear industry continues to face significant regulatory challenges. Stringent regulations, a response to historical nuclear disasters such as Three Mile Island in 1979, Chernobyl in 1986, and Fukushima in 2011, have slowed the progress of new projects. Research from Canaccord Genuity indicates that it typically takes the US Nuclear Regulatory Commission (NRC) an average of 80 months to approve nuclear plant construction in the country.

FERC’s recent ruling cited concerns about the potential impact of the Amazon nuclear power agreement on the reliability of the power grid and the risk of increased energy costs for consumers. Constellation’s agreement with Microsoft, which involves the potential restart of the Three Mile Island facility for the first time since the meltdown, still awaits approval from the NRC.

Despite these challenges, there is a growing bipartisan effort to reduce regulatory barriers in the nuclear sector. The ADVANCE Act, recently signed into law, aims to expedite the permitting process for nuclear projects. Both major US presidential candidates have expressed support for advancing nuclear energy initiatives, although concerns about safety remain, particularly from Republican nominee and former president Donald Trump.

In conclusion, while Constellation Energy’s stock has shown remarkable resilience and growth amid the increasing interest in nuclear power from tech giants, the sector must navigate a complex landscape of regulatory challenges and public perception. The future of nuclear energy investment will depend significantly on how these dynamics unfold in the coming years.