Constellation Energy partners with Microsoft to revive nuclear reactor, boosting stock price

From Nasdaq: 2024-09-25 18:32:50

The demand for power from data centers is skyrocketing as tech companies like Microsoft expand their AI and cloud computing businesses. U.S. electricity consumption is expected to grow by 2.4% annually between now and 2030, with data center power demand estimated to double by 2026. Microsoft has agreed to a $1.6 billion deal with Constellation Energy to revive a reactor at the Three Mile Island nuclear power plant to meet its power needs.

Interest in nuclear power is surging due to growing electricity demands from data centers, leading companies like Amazon and Microsoft to invest in nuclear plants. The Department of Energy is offering subsidies to nuclear operators to keep aging plants open, given the increased projections for peak power demand over the next decade. Constellation Energy’s market cap has jumped by nearly $15 billion following the Microsoft deal, with shares up over 200% since 2022.

CEG stock soared after the announcement of the deal with Microsoft, reaching an all-time high. Analysts estimate that the agreement with Microsoft could be worth $115 per megawatt hour, twice or more the current market price of electricity. The impact of the Microsoft contract is valued at $3 billion with an internal rate of return of 38% including debt capital.

The decision to revive the Three Mile Island reactor is seen as a significant step towards the rebirth of nuclear power as a clean and reliable energy source. Constellation Energy, the largest nuclear fleet operator in the U.S., stands to benefit the most from this deal. CEG stock is considered a buy below $287 according to analysts at Jefferies.



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