Analyst chatter following last week's news that S&P 500 component Constellation Energy and Microsoft had inked a two-decade long contract to provide nuclear power for the tech giant's data centers has fueled a utility stock rally this week. Analysts have spun out a number of upgrades and price-target hikes, seeing the agreement as signaling "higher prices for future deals."
Along with Constellation Energy, fellow S&P 500 nuclear power utilities play Vistra has jumped around 7% this week. Meanwhile, S&P 500 stock NRG Energy gained ground during Friday's market action, adding to a Thursday advance after it raised 2024 guidance with management claiming the company can "drive growth and capitalize on the emerging opportunities in our markets."
On Monday, Morgan Stanley analyst David Arcaro wrote that the Constellation-Microsoft deal "proves out the value of nuclear power for hyperscalers, with higher prices for future deals." Hyperscalers operate the largest, most high-end data centers, typically for cloud hosting or to process generative AI programs.
Morgan Stanley estimates Microsoft is paying around $100 per megawatt hour in the deal. That represents a $50 per megawatt hour premium compared to the broader market. Arcaro believes Microsoft was willing to pay as much as much as $130 per megawatt hour, Morgan Stanley is now expecting higher prices.
Meanwhile, Morgan Stanley analysts Arcaro and Stephen Byrd also wrote Monday that S&P 500 component GE Vernova, with its natural gas power generation equipment segment, and Siemens are among the stocks that could benefit from surging AI demand for electricity.
GE Vernova was the IBD Stock Of The Day on Monday.
Bloom Energy0, along with S&P 500 stocks NRG Energy, Vistra and Public Service Enterprise, are other stocks that could benefit as major hyperscalers look to diversify the ways in which they feed electricity to their data centers, according to Morgan Stanley.
S&P 500: Stocks Go Nuclear
Constellation Energy stock jumped 1.3% to 259.99 on Friday, adding to a 30% gain in September.
Meanwhile, Vistra stock advanced 2% to 116.14 on Friday, gaining more than 7% on the week.
On Sept. 20, the S&P 500 stock gained 16.6% to 107.88, narrowly moving above a 107.24 cup-base entry.
Vistra is also reportedly in discussions for power deals at both its nuclear and natural gas-power plants. The S&P 500 stock has skyrocketed 209% in 2024.
NRG stock gained 0.7% to 91.19 on Friday, continuing to move above an official 87.58 buy point, according to MarketSurge chart analysis.
Public Service Enterprise stock angled up 0.5% to 87.89 Friday. The S&P 500 component is extended above an official 81.89 buy point from a flat base pattern, according to MarketSurge.
'Nuclear Exposure' A Positive
Oklo, the nuclear power startup backed by OpenAI head Sam Altman, declined Friday but is up more than 40% in September.
The stock ballooned 27% on Sept. 20 after B. Riley Financial initiated coverage on the nuclear reactor company with a buy rating and a 10 price target, citing its owner-operator model as a unique advantage. Cathie Wood has been building a position in Oklo worth more than $2 million since mid-July.
Nano Nuclear Energy surged 11% to 16.70 on Friday after gaining nearly 20% on Thursday.
Meanwhile, Flowserve edged down around 0.3% to 52.10 Friday but is still up nearly 9% gain on the week.
Flowserve broke out above an official 52.09 buy point on Wednesday.
On Tuesday, Bank of America On Tuesday, wrote that Flowserve has "underappreciated nuclear exposure" in the aftermath of the Constellation-Microsoft nuclear power deal.
Bank of America analyst Andrew Obin estimates nuclear power exposure makes up about 3%-4% of Flowserve's total sales. Obin wrote that nuclear power demand growth is not embedded into Flowserve's long-term growth algorithm for mid-single digit growth, suggesting potential upside to 2026 and 2027 forecasts.
Flowserve provides industrial pumps along with mechanical seals, auxiliary systems and replacement parts for global infrastructure projects.
Please follow Kit Norton on X @KitNorton for more coverage.
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