In a market already jittery about tech spending, nuclear energy stocks took a significant hit on Monday, Feb. 24 as reports surfaced that Microsoft (MSFT) is canceling AI data center leases. Analysts at TD Cowen published a note indicating the tech giant has scrapped leases amounting to “a couple of hundred megawatts” of capacity — enough to power approximately 150,000 homes.
The news sent shockwaves through the nuclear energy sector, with Constellation Energy (CEG), the country's largest nuclear plant owner, plunging nearly 6%. Other nuclear players weren't spared, either, with Vistra (VST) down 5% and reactor developers Oklo (OKLO) and NuScale (SMR) dropping 12% and 3%, respectively.
Nuclear stocks have soared over the past year due to anticipated demand from AI data centers. Notably, several tech companies, including Microsoft, favored nuclear power for its reliability and zero-carbon emissions, which align with their climate pledges.
Microsoft attempted to downplay the reports, stating it’s still on track to spend over $80 billion this fiscal year on infrastructure and adding, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”
However, just weeks after Chinese AI company DeepSeek suggested tech firms can create AI products using less power, the market appears increasingly sensitive to any hint of wavering demand from tech giants.
Is Constellation Energy a Good Stock to Own Right Now?
With a market cap of $83 billion, Constellation Energy stock is down 24% from its all-time highs. Despite the ongoing pullback, the energy stock has returned over 100% in the past year and 555% since January 2022.
While investors are nervous about Microsoft’s reported cancellation of AI data center leases, Constellation Energy’s latest earnings report reveals a company with strong fundamentals that challenge the recent stock plunge.
Constellation reported adjusted operating earnings of $8.67 per share for 2024, significantly exceeding its twice-revised guidance range of $8-$8.40. Management has also affirmed its 2025 guidance of $8.90-$9.60 per share.
Constellation’s existing relationship with Microsoft makes the market reaction particularly puzzling. The earnings report explicitly highlights “the signing of a 20-year power purchase agreement with Microsoft that will support the launch of the Crane Clean Energy Center,” contradicting concerns about waning tech demand for nuclear power.
Operationally, Constellation maintains its position as the nation’s top producer of emissions-free energy, achieving an impressive 94.6% nuclear operating capacity factor for 2024. Its clean energy credentials are unmatched, with Constellation noting that the next cleanest competitor has more than 4.5 times its carbon dioxide emission rate.
A Big-Ticket Acquisition
Earlier this year, Constellation Energy announced a definitive agreement to acquire Calpine in a transaction valued at approximately $16.4 billion. The deal includes 50 million shares of Constellation stock, $4.5 billion in cash, and the assumption of about $12.7 billion of Calpine’s net debt.
The acquisition creates America’s largest clean energy provider by combining Constellation’s nuclear portfolio with Calpine’s natural gas (NGH25) and geothermal assets. Together, they’ll have nearly 60 gigawatts of capacity from zero- and low-emission sources, including the largest geothermal operation in the U.S.
The deal is expected to be immediately accretive to Constellation’s earnings, with over 20% EPS accretion projected for 2026 and at least $2 per share accretion in future years. It will also add over $2 billion in annual free cash flow.
What Is the Target Price for CEG Stock?
Analysts tracking Constellation Energy forecast adjusted earnings to expand from $8.67 per share in 2024 to $10.28 per share in 2026. Thus, the nuclear energy stock trades at a premium, priced at 25.7x forward earnings.
Out of the 17 analysts tracking CEG stock, 11 recommend “Strong Buy” and six recommend “Hold.” The average target price for CEG stock is $316.44, indicating upside potential of 20% from current levels.
