Nuclear power is making a comeback. Over the past year, 31 nations have signed the Declaration to Triple Nuclear Energy, pledging to triple their nuclear energy capacity by 2050. Major financial institutions like Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley are on board, amplifying this wave of support.
When you pair this with relentless demand for energy from the tech industry, it's clear that nuclear power will play a vital role in the future of clean energy. One of the key players in the uranium sector, Cameco (CCJ -0.13%), could thrive as the perception toward nuclear power shifts.
With global nuclear energy demand expected to soar over the next few decades, could now be the time to invest in Cameco? Let's dive into the business and industry and what the future might bring.
Nuclear energy is enjoying a resurgence
The surge of artificial intelligence (AI) in recent years has been nothing short of spectacular. As these powerful AI models continue to evolve, demand for energy has skyrocketed, leading to growing demand for power-hungry data centers. According to Goldman Sachs, this could lead to a staggering 160% increase in data center power demand by 2030.
To address these power needs, tech giants are forging partnerships with nuclear energy providers, marking a significant shift in how we think about energy consumption in the tech industry. Last month, Microsoft made headlines by signing a 20-year power purchase agreement with Constellation Energy, which includes the exciting prospect of restarting Three Mile Island Unit 1.
Oracle is pushing the envelope further by designing a state-of-the-art data center powered by small modular reactors (SMRs). While this promising technology may not hit the commercial market for a few years, its potential could redefine how nuclear power is deployed.
Adding to this momentum, Congress's recent passage of the ADVANCE Act, which received strong bipartisan support, is a game changer. This legislation looks to lower regulatory costs and provide financial incentives for companies innovating in nuclear reactor technologies.
Cameco is one of the largest publicly traded uranium producers
The resurgence of nuclear energy marks a significant shift in the global energy landscape. After years of hesitancy and reevaluation of nuclear power, primarily following the Fukushima Daiichi disaster in Japan in 2011, many countries are rekindling their interest in this carbon-free, clean energy source.
Cameco is a giant in the nuclear industry and one of the largest publicly traded companies in the sector. Its operations in Saskatchewan and the United States are complemented by a 40% interest in a joint arrangement with Kazatomprom in Kazakhstan. It also has a 49% stake in Westinghouse, a powerhouse in the nuclear services sector, in a joint venture with Brookfield Renewable Partners.
Cameco operates two mines at Cigar Lake and McArthur River in Saskatchewan and one of the largest commercial refineries in the world in Ontario. The company, which is on pace to produce 23.1 million pounds of uranium this year, is well positioned for strong demand when supply is tight due to underinvestment in development and exploration, along with the recent U.S. ban on Russian uranium imports.
Image source: Getty Images.
Be aware of this risk when investing in commodity producers
One factor to consider is uranium prices, which are heavily influenced by market dynamics. If public sentiment turns against nuclear energy, it could leave the industry and its key players vulnerable to falling prices and, thus, falling earnings.
For instance, from 2011 until just a few years ago, many countries significantly reduced their reliance on nuclear power after the Fukushima disaster. This came at the same time that uranium production was elevated. As a result, uranium prices and Cameco's stock price collapsed as a result.
Long-term trends make Cameco a buy
With that said, longer-term trends favor the industry. Recently, the International Atomic Energy Agency (IAEA) has revised its annual projections for the expansion of nuclear power. The agency projects at the high end that nuclear capacity could increase by as much as 2.5 times its current capacity by 2050.
Near-term trends appear favorable, too. Although no immediate plans exist to construct new reactors in the United States, moves are being made to increase demand in other ways, including increasing the capacity of existing plants, extending their operational life, and reactivating retired nuclear facilities.
Next year, Citi forecasts uranium prices could average $110 per pound as demand rises while supply struggles to keep pace. As one of the largest uranium suppliers in the world, elevated prices and the longer-term push for clean, reliable nuclear energy bodes well for Cameco.
