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The nuclear energy industry is making a strong comeback in 2024, fueled by the global demand for clean and dependable energy sources. Recent developments, like Constellation Energy's (CEG) deal with Microsoft (MSFT) to restart a Three Mile Island reactor, showcase the renewed interest in nuclear power from major tech companies looking to fuel their artificial intelligence (AI) ambitions without adding to their carbon footprint.
The global investment landscape reflects this nuclear resurgence, with total investment in nuclear power expected to hit $80 billion in 2024, nearly doubling the 2018 figure. This growth is part of a broader energy investment boom, with global energy investment set to surpass $3 trillion for the first time in 2024, and $2 trillion allocated to clean energy technologies and infrastructure.
As governments and corporations recognize nuclear energy's role in achieving climate goals and ensuring energy security, this resurgence presents unique investment opportunities. Let's explore some of the best ways to invest in this nuclear revival.
#1. Constellation Energy Corp (CEG)
Valued at $81.9 billion, Constellation Energy Corp (CEG) has positioned itself as a leader in the clean energy sector, boasting a diverse portfolio of nuclear, hydro, wind, and solar assets. The utility company is capitalizing on the growing demand for sustainable energy solutions while maintaining a modest dividend yield of 0.54%, paying out $1.41 per share annualized.
The market has responded positively to Constellation's performance and strategic initiatives, with the stock gaining 122% year-to-date and 138% over the past 52 weeks. The stock has surged 32% in the last month alone.
Despite higher interest costs, Constellation reported strong Q2 results. GAAP net income rose to $2.58 per share from $2.56 a year ago, although net income dipped slightly to $814 million from $833 million due to those higher interest expenses. Adjusted EPS arrived at $1.68 per share. The company's nuclear fleet produced 45,314 GWhs in Q2 2024, up from 41,895 GWhs in the same period last year, achieving a 95.4% capacity factor compared to 92.4% the previous year.
Constellation's recent success is largely attributed to its 20-year power purchase agreement with Microsoft, which will restart the Three Mile Island Unit 1 reactor as the newly renamed Crane Clean Energy Center. This deal will restore 835 megawatts of carbon-free energy to the grid, create 3,400 jobs, and generate over $3 billion in tax revenue. The restart is expected to boost Constellation's earnings by $1.70 per share and contribute $445 million to its net profit.
Constellation has raised its full-year adjusted profit forecast to $7.60-$8.40 per share, surpassing analysts' expectations. This optimistic outlook is driven by growing power demand from AI data centers and the U.S. government's push for climate-friendly energy solutions.
Analysts maintain a "Moderate Buy" rating on Constellation. Out of the 16 analysts covering the stock, 11 recommend a “strong buy,” and 5 suggest a “hold.”
#2. Utilities Select Sector SPDR Fund (XLU)
The Utilities Select Sector SPDR Fund (XLU) is a popular ETF that offers investors broad exposure to utility companies, including those set to benefit from nuclear energy upside. In particular, Constellation Energy (CEG) is a top holding in XLU, which also gives investors a piece of nuclear-related utilities like Southern Co (SO) and Entergy (ETR).
XLU keeps it simple by tracking the Utilities Select Sector Index, which includes all of the utility stocks in the S&P 500 Index ($SPX). This allows investors to tap into the performance of the entire utilities sector within the large-cap U.S. stock market. The ETF's straightforward approach has made it a hit with investors looking for stable, income-generating investments.
With $18.4 billion in assets under management (AUM), XLU is one of the biggest and most liquid utilities sector ETFs out there. Plus, XLU has a low expense ratio of just 0.09%, making it one of the most cost-effective options in its category.
Over the past 52 weeks, the ETF has gained 37.2%, while year-to-date, it's up 27.6% - including a surge of 19.5% in the last three months alone.
XLU holds 35 stocks, with a significant concentration in its top holdings, including NextEra Energy (NEE), at 14.08%, Southern (SO), at 7.99%, Duke Energy Corp (DUK), at 7.30%, Constellation (CEG), at 6.59%, and American Electric Power (AEP), at 4.40%. The top 10 holdings account for approximately 59% of the fund's total assets.
Income-focused investors will appreciate XLU's attractive dividend yield of 2.74%, based on the annualized payout of $2.16 per share. This yield is backed by over a decade of consistent growth, and the generous payout aligns with the utilities sector's reputation for providing reliable passive income.
#3. VanEck Uranium and Nuclear Energy ETF (NLR)
The VanEck Uranium and Nuclear Energy ETF (NLR) offers investors a more focused way to tap into the growing nuclear energy sector. This ETF provides exposure to the whole nuclear energy chain, from uranium miners to utilities and service providers, making it a great choice for those looking to benefit from the industry's growth.
NLR is attractive for a couple of reasons. First, it offers a solid 3.89% dividend yield, with the annual payout set at $3.26 per share. This is appealing to income-focused investors, especially as interest rates start to decline. Plus, NLR has delivered solid capital returns, up 16.9% so far this year and 18.4% over the past year.
NLR's strategy is to track the MVIS Global Uranium & Nuclear Energy Index, focusing on companies that get at least half of their revenue from nuclear energy. This approach gives investors direct exposure to the booming nuclear market.
The fund's AUM has grown to $244.5 million, with average share volume hovering just below 50,000. Even with its specialized focus, NLR keeps its costs reasonable with an expense ratio of 0.61%, balancing targeted exposure with affordability.
The ETF's portfolio includes 27 carefully selected holdings, offering a concentrated method to capture the potential of the nuclear energy sector. Constellation Energy (CEG) leads the pack with a 9.52% share, highlighting its role in driving the industry forward. Public Service Enterprise Group (PEG) comes next at 7.34%, adding a strong utilities angle, while Cameco (CCJ), at 6.78%, provides key exposure to uranium production.
PG&E Corp (PCG) and BWX Technologies Inc (BWXT) round out the top five holdings at 6.08% and 5.79%, respectively, further diversifying the portfolio across utilities and nuclear tech suppliers.
Conclusion
In wrapping up, we've explored three solid options for investors to ride the nuclear energy wave: Constellation Energy (CEG) for direct exposure, the Utilities Select Sector SPDR ETF (XLU) for a broader utilities play, and the VanEck Uranium and Nuclear Energy ETF (NLR) for a focused bet on the nuclear supply chain. Each offers a unique way to tap into the nuclear renaissance, catering to different investment styles and risk appetites. As nuclear power gains traction in the clean energy landscape, these investments could be well-positioned for growth.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
