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Category: Alternative Energy

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AI Alternative Energy Cloud Service Providers Industry Power and Utilities Stocks

NextEra: The Green Energy Leader Can Benefit From Data Center

NextEra Energy

NextEra Energy (NEE) $84 has a huge scale of operations. It is the largest green energy producer in the world and the largest player in the U.S. market with more than 20% market share. Long-term revenue of at least 10% a year and dividend growth seem assured, but I would wait for a better entry price.

The U.S. is forecast to experience a significant growth in electricity demand in the coming years, fuelled by the growth in data centers and AI, the proliferation of electric vehicles, the increased use of energy in the home, and the increasing number of extreme weather events, especially prolonged heat spells.

Estimates vary, but NEE is expecting a 38% growth in power demand over the next 20 years (Statistica says 27%); that growth is 4 times higher than the growth seen in the previous 20 years. Clearly, data center demand will outstrip decades of growth, given the hyper scaler Capex.

NEE has a solid balance sheet with an A- credit rating and its unprecedented scale allows it to access huge amounts of capital. Its operating margins are more than 30% – This is a huge competitive advantage especially if data center power generation pans out. The long-term nature of their business and proven ability to generate cash over a long period de-risks the high level of debt.

The stock is up 55% in the past year but is definitely interesting to buy on a pullback.

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AI Alternative Energy Cloud Service Providers Power and Utilities Stocks

Constellation Energy Could Be Interesting To Buy On A Dip

Constellation Energy (CEG) has surged over 130% in the past year to $280 – I would wait for a pullback. 

Constellation Energy (CEG) and NextEra Energy (EEE) are the largest carbon-free / nuclear energy companies in the US today. It’s important to note here that a nuclear power generator can operate cheaper than other energy sources but only if it’s already in commission.

New nuclear plants will take a huge amount of government help, subsidies, permissions, and cost overruns. Future profitability and cash generation will take a long time, so existing players like Constellation and Next Era who have a large nuclear/carbon-free energy share of total power generation have definite competitive advantages.

Microsoft’s deal with Constellation should be accretive to earnings from 2028. (Assuming that the govt okays the deal and it gets on track).

However, analyst haven’t added this to their forecasts, so there is a great deal of skepticism there. Constellation, by itself, is not a very efficient company, with operating margins at 8-12%, much lower than Next Era’s. 

AI needs power: With the renewed focus on nuclear energy power generation, investors likely expect the AI-driven surge to carry on as AI infrastructure investments enter the next scaling stage. OpenAI’s ability to raise more funds at a much higher valuation than the previous year has strengthened the AI growth thesis. Nvidia’s (NVDA) commentary suggests its new Blackwell chips are already sold out over the next twelve months has renewed the market’s interest in the AI theme, potentially benefiting nuclear power generators like CEG.

Money talks: Huge data center operators and hyperscalers have demonstrated their willingness to pay a substantial premium to secure their power requirements. Unless the AI monetization opportunities fail to pan out convincingly over the next few years, it seems reasonable to expect CEG’s much more robust profitability outlook to play out in the medium term.

Regulations remain tight: Possible market structure changes and regulatory hurdles could affect a more robust outlook moving ahead. Despite that, the government seems keen to restart nuclear plants, corroborating the fervor in CEG and its leading nuclear peers.

In addition, Constellation’s ability to obtain a federal loan guarantee (cleared initial review stage) to help finance the restart of the Three Mile Island nuclear plant is expected to provide more confidence to investors. However, investors could consider buying CEG at a dip, and not chase the stock, with so many uncertainties.

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AI Alternative Energy Cloud Service Providers Stocks Utilities

The Nuclear Comeback Needs Careful Consideration

Small Modular Reactors

10/16/2024

Small Modular Reactors, (SMR) companies are going to be high-risk / high-reward stocks with such large jumps (40% in a day); and on Cloud Service Providers’ involvement, the risks got even higher. Besides Oklo and NuScale, I’ve included a couple of other much larger nuclear power and clean energy companies that could ride the boom if it materializes.

Oklo Inc (OKLO) $16.55  is up 42% today on the Amazon announcement!! 

It’s a Sam Altman (OpenAI) back SPAC, a nuclear power company or, more precisely, a fast-fission clean power technology and nuclear fuel recycling company. MIT graduates Jacob DeWitte and Caroline Cochran co-founded Oklo in 2013.

The growing demand for electricity globally and renewable energy policies will favor Oklo, but it would be prudent to see more progress before making an investment, these are really early stage companies in highly regulated environments.

The Nuclear Comeback:

Nuclear power provides ~9% of total and ~25% of low-carbon electricity globally, making it a major and clean energy source. 22 countries (including the US, the UK, France, Japan, and other influential countries) agreed and declared they would work towards tripling nuclear energy capacity by 2050 during the last COP28 meeting on December 2023, recognizing the key role of nuclear power in the green transition and the global net-zero emissions goal. Hence, we could experience a nuclear power boom, after decades of stalling. The ADVANCE Act also points in that direction regarding the US. Nuclear power rejuvenation could be unfolded from existing and new players in the coming years. Nuclear fission advanced technologies and small modular reactors will play an important role in achieving this goal. Commercialization of nuclear fusion is also expected to debut by the end of the decade.

For the coming quarters/years, the company is expected to burn cash ($40M-$50M 2024 expected operating loss) while revenue should start flowing in 2027 and profits even later. 

Key Risks

  • Regulatory, environmental, political, and application-related issues will cause delays.
  • Additional funding will be needed along the way, and Oklo will dilute shareholders or issue debt.
  • Oklo is an emerging growth, pre-production, unprofitable company; this could result in stock price volatility.

If you have some funds set aside for speculative/high-risk investment, you could allocate a small amount towards it, though  I would wait for a pullback.

NuScale Power Corporation (SMR)

  • NuScale – at $19, just like competitor OKLO is up 40% in a week and 220% in the past year!
  • A baby – it is a pre-commercialisation technology company designing a Small Modular Nuclear reactor, which could become very succesful.
  • It has US government support, and strategic partnerships, but faces intense competition from larger, more established players like Vistra, and better-funded startups with next-generation nuclear technology, like OKLO.
  • A very risky play at this stage

Positives: 

Samsung’s subsidiary, Korea’s No.1 private utility company, will lead the construction and engineering of the new plant.

Negatives: 

Competition is intense; they are up against established large-scale companies like Westinghouse Electric, which built a nuclear reactor over 60 years ago, TerraPower formed by Bill Gates, and BWX Technologies (BWXT) is another major competitor in the US, a second company with more than 100 years of operation and established nuclear divisions.

The Short Seller Report

NuScale was hit by a short seller report update from Iceberg Research last month, claiming that it has no serious customers. Given the charges, it would make sense for the dust to settle, before investing.

Besides the valuation is extremely high. This needs further analysis and investigation.

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AI Alternative Energy Stocks Utilities

Vistra (VST)-A Strong Utility With A Big Focus On Clean energy.

Clean Energy Vistra

Vistra (VST) $137 One of the better utilities with good operating margins and a big focus on clean energy – worth buying on declines.

As data centers hunger for power and nuclear energy gathers steam, Vistra has already benefited from a 200% YTD rise. Its focus on nuclear energy and clean energy partnerships makes it a strong contender, but a short-term correction should make it more attractive.

Vistra’s biggest source of power generation is still hydrocarbons like natural gas, LNG, and coal, accounting for 56% of its total generation as of the first half of 2024 (H1 2024).

However, with the completion of its acquisition of Ohio based nuclear energy utility Energy Harbor in March this year, its focus on nuclear energy in particular and clean energy in general has increased.

As of H1 2024, nuclear energy accounted for 22.9% of its total energy generation, up from 12.3% in H1 2023. The acquisition also made Vistra the second-biggest nuclear energy generator after CEG. Further, with nuclear energy eligible for production tax credits under the US’s Inflation Reduction Act, Vistra’s earnings can be positively impacted with increased focus on nuclear energy.

The stock’s forward EV/EBITDA at 12.38x is also running higher than its five-year average of 7.95x. VST’s forward non-GAAP price-to-earnings (P/E) ratio at 22.84x is similarly higher than the five-year average of 15.17x and as per analysts’ estimates, will remain so next year as well.

As such, a correction would be better for it in the short term, which should give investors a better buying opportunity.

Vistra is not a pure-play nuclear energy company, and that is perhaps to its advantage – it has the cash cow from traditional energy sources to balance out the volatility from nuclear buildout, safety compliance, and regulations.

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Alternative Energy Stocks

Canandian Solar (CSIQ)

Canandian Solar (CSIQ) 13.50 Hold – solar will see some benefits from lower interest rates as a sector, but it may be better to look at stonger US based companies, though.

Revenues have grown every year at single digits and it has ben profitable 2.96 to 7.61, profitable every year. The stock is down over 40% in the past 12 months and  negative in the last 5-10 years. 

Positives

Interest burden will come down with lower rates, after Powell signalled a lower interest rate regime from the next meeting.

They have a decent enough presence in the US markets and should there be more emphasis on renewable energy this will benefit.

Negatives

Solar panel producers face a glut from Chinese suppliers and this year was no different, plus Canadian was selling to the Chinese market, which was slow. It is a Chinese company even though the name is Canadian –  I suspect valuations will tend to be lower. 

80% of CSIQ’s solar manufacturing capacities are based in China and ~15% in Southeast Asia, with CSIQ already facing additional import duties beginning June 2024, attributed to the ongoing EU and US trade ban surrounding Chinese-made polysilicon products.

Lot of debt like most solar panel producers.

Customers struggle with financing of solar panels at their homes because of  high interest rates, particularly in the U.S. Solar loans are now around 9% after being around 4% for many years.