S&P 500 Nuclear Leader Jumps 20% After Inking 20-Year Microsoft Deal

S&P 500 component Constellation Energy (CEG) announced Friday it plans to restart a Three Mile Island reactor after it signed a two-decade long contract with Microsoft (MSFT) to provide power for the tech giant’s data centers. CEG shares surged Friday.

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Constellation Energy said Friday it will be firing back up Pennsylvania’s Three Mile Island Unit 1, which ended operation in 2019, to provide the necessary energy to meet Microsoft’s needs over the life span of the 20-year contract. The company estimates the reactor will add 835 megawatts to the grid.

“This agreement is a major milestone in Microsoft’s efforts to help decarbonize the grid in support of our commitment to become carbon negative,” Bobby Hollis, Microsoft’s vice president of energy, said in a statement. “Microsoft continues to collaborate with energy providers to develop carbon-free energy sources to help meet the grid’s capacity and reliability needs.”

The Three Mile Island Unit 1 reactor is located adjacent to the Unit 2 reactor, which shut down in 1979 after the partial meltdown at the nuclear power plant. Accidents at Three Mile Island, Chernobyl and Fukushima loom large in the minds of utilities and their insurers. In addition, long-term safety and environmental concerns over storing and disposing of spent radioactive fuel rods create resistance to new nuclear development. Nuclear power has declined in recent years, with 13 plants closing since 2013.

Constellation Energy said Friday that to restart the reactor, “significant investments will be made to restore the plant, including the turbine, generator, main power transformer and cooling and control systems.”

The process also requires U.S. Nuclear Regulatory Commission approval following a comprehensive safety and environmental review, as well as permits from relevant state and local agencies.

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S&P 500: Constellation And Vistra Take Off

Constellation Energy, an S&P 500 stock, surged 22.3% to 253.98 during market trade on Friday. The S&P 500 stock advanced 4% to 208.50 on Thursday.

Meanwhile, Microsoft stock dropped 0.8% to 435.27. MSFT gained 1.8% to 438.69 on Thursday. Shares are currently in a cup base pattern with a 468.35 buy point.

Fellow S&P 500 nuclear power utilities play Vistra (VST) gained 16.6% Friday. Vistra has also been in reported discussions for power deals at both its nuclear and natural gas-power plants. The stock has skyrocketed 141% in 2024.

Uranium refiner Cameco (CCJ) jumped more than 8% Friday.

AI And Nuclear

So far in 2024, S&P 500 component Constellation Energy has been riding the artificial intelligence energy wave. Artificial intelligence — and the data centers needed to train the systems — are expected to boost energy demand throughout this decade. In the U.S., McKinsey & Co. projects that data center energy demand will grow around 10% every year through 2030.

Additionally, in 2022, the 2,700 U.S. data centers consumed around 4% of the country’s total electricity generated electricity, according to the International Energy Agency. The agency projects that by 2026, such centers will make up 6% of electricity use.

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Many technology companies are investing in or partnering with nuclear power providers to ensure energy supplies for their data centers.

Morgan Stanley analysts have proclaimed in recent months that a “nuclear renaissance” is underway.

They wrote that nuclear power, while still a divisive issue, is making a comeback. The firm sees $1.5 trillion in investment in new capacity through 2050.

Top hyperscalers — the largest cloud, data center and AI operators — include Microsoft, Amazon.com‘s (AMZN) AWS, Meta (META) and Alphabet (GOOGL). In March, Talen Energy announced its sale of a 960-megawatt data center campus to AWS for $650 million, sited near its Pennsylvania nuclear plant.

S&P 500: Constellation Energy Stock Performance

Constellation Energy stock is up 79% year to date through Thursday’s close. Shares rebounded above support and broke a down-sloping trendline this week.

The S&P 500 component has retreated around 11% since hitting an all-time high 236.30 on May 24. The stock is officially in consolidation, according to MarketSurge. That all-time high is technically a buy point. But the stock will be somewhat extended at that level, so investors should be watching for earlier entry opportunities.

In early August, Constellation Energy increased its full-year profit guidance even as second-quarter earnings and revenue came in slightly under analyst expectations. The company expects 2024 EPS between $7.60-$8.40 per share for 2024. Constellation Energy’s previous view was $7.23-$8.03 per share.

Constellation management said in May it will grow base earnings by at least 10% through the end of the decade.

Founded in 1999, Constellation Energy has gone through several phases. After an earlier stint as a public company, it merged with Exelon in 2012 as part of a deal worth roughly $8 billion. While with Exelon, the company’s moniker became Constellation Energy Generation. It then split from the utility giant in early 2022.

Constellation Energy owns 25% of U.S. nuclear power reactors. Further, it provides energy to more than 20% of the major commercial and industrial customers in the country.

Constellation Energy stock has a 78 Composite Rating out of a best-possible 99. The S&P 500 stock also has an 92 Relative Strength Rating and a 54 EPS Rating.

Please follow Kit Norton on X @KitNorton for more coverage.