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Nuclear Energy Charging Up to Power AI: Buy ETFs on Dip?

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Nuclear energy is rapidly emerging as a choice for powering artificial intelligence (AI) systems due to its ability to provide a stable, high-output source of electricity. As AI technologies continue to grow and require more computational power, the demand for reliable energy sources becomes important.

Impact of AI on Power Demand

AI is poised to drive a 160% increase in data center power demand by 2030, per Goldman Sachs. On average, a ChatGPT query needs nearly 10 times as much electricity to process as a Google search. At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade.

Case for Nuclear Energy

This is where the demand for nuclear energy lies. The world is striving to cut down on carbon emissions, and consumers and corporations are opting for cleaner versions of energy. However, unlike other renewable sources, which can be intermittent, nuclear energy offers a consistent solution. Additionally, advancements in nuclear technology, such as small modular reactors, are making it more adaptable and safer for widespread use.

Will Republicans Back Nuclear?

Banking behemoths, including Bank of America (BAC - Free Report) , Citi (C - Free Report) , and Morgan Stanley (MS - Free Report) recently pledged for the goal of tripling nuclear power. While Democrats have been more hesitant to support it due to environmental concerns, most Republicans have been pro-nuclear. And with Republican winning the U.S. election, we can expect more nuclear energy production to power AI, going forward.

Inside the U.S. Power Grid's Challenges

States such as Georgia, Arizona, and Texas are already struggling to meet rising electricity needs. The growing demand from AI and data centers increases this challenge. Nuclear energy offers the only scalable solution to ensure the U.S. power grid can handle future demands effectively..

Big Tech’s Rush to Nuclear Energy Suppliers

Recent deals by giants like Microsoft, Amazon and Google with U.S. suppliers to purchase nuclear power indicate their commitment to utilizing low-carbon electricity to energize their AI data centers. According to CNBC, Google GOOGL recently announced plans to buy power from a fleet of small modular reactors (SMRs) developed by Kairos Power, stating that its first nuclear reactor from Kairos Power is expected to be operational by 2030, with additional reactors coming online by 2035.

Microsoft also followed suit, as quoted on CNBC, signing an agreement with U.S. energy firm Constellation (CEG - Free Report) recently, to revive a dormant reactor at the Three Mile Island nuclear power plant in Pennsylvania. Amazon, too, recently announced a $500 million deal with Dominion Energy (D - Free Report) to explore the development of a small modular reactor near Dominion’s North Anna nuclear power station, per CNBC.

Time to Tap Uranium ETFs?

Being an essential component in sustainable and reliable energy generation, the growing interest in nuclear energy has led to an optimistic outlook for Uranium. But the supply of uranium is in crunch.

Kazakhstan, the leading uranium producer globally, accounting for approximately 45% of global production, recently announced a 17% cut in its forecasted production for 2025.

Investors can thus use the following pure-play uranium-related exchange-traded funds (ETFs) to capitalize on the latest growth trajectory. Notably, these ETFs are down past month as chip giants (the backbone of AI) have underperformed during that timeframe.

Profit booking, downgrades of some chip biggies by analysts, China’s probe for chip giant NVIDIA, some subdued earnings results — weighed on the chip space. Since uranium now falls in the AI investing periphery, this dip can be an entry point to the below-mentioned ETFs.

VanEck Uranium and Nuclear ETF (NLR - Free Report) – down 1.8% past month (as of Dec. 5, 2024)

Global X Uranium ETF (URA - Free Report) – down 0.5% past month

Sprott Uranium Miners ETF (URNM - Free Report) – down 0.3% past month


 

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