Tag: Artificial Intelligence

Constellation Energy Could Be Interesting To Buy On A Dip

Post author By Fountainhead
Post date 10/16/2024
No Comments on 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.

Tags AI, Artificial Intelligence, CEG, Constellation Energy, data center, Nuclear Energy, stock analysis

AI Alternative Energy Cloud Service Providers Stocks Utilities

The Nuclear Comeback Needs Careful Consideration

Post author By Fountainhead
Post date 10/16/2024
No Comments on 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.

Tags AI, Artificial Intelligence, data center, Nuclear Energy, Small Modular Reactors, SMR, stock analysis

AI Semiconductors Stocks

Nvidia – The Blackwell Ramp

Post author By Fountainhead
Post date 09/25/2024
No Comments on Nvidia – The Blackwell Ramp

Nvidia (NVDA) $121 (AI) (Semiconductors)

And here we are ramping Blackwell, and it’s in full production,” said Nvidia CEO Jensen Huang, during the Goldman Sachs Communacopia + Technology Conference. “We’ll ship in Q4 and scale it — start scaling in Q4 and into next year. And the demand on it is so great … and so the intensity is really, really quite extraordinary.”

https://seekingalpha.com/news/4152814-nvidia-trends-up-as-blackwell-release-date-nears

“Blackwell chips are expected to see 450,000 units produced in the fourth quarter of 2024, translating into a potential revenue opportunity exceeding $10B for Nvidia,” according to a post today on X.

The estimate during the August conference call was for $3Bn Blackwell revenue in Q4, so this is a big change. Fundamentally there wasn’t any real difference, just the quarterly cadence from Q4 to Q1, but this does help the stock in the short term and more importantly should put to rest any rumors or doubts about Blackwell design flaws.

Tags AI, Artificial Intelligence, NVDA, Nvidia, Semiconductors

Market Outlook

A Steep Fall on weaker PMI???

Post author By Fountainhead
Post date 09/03/2024
1 Comment on A Steep Fall on weaker PMI???

The big drop of 2% in the S&P and 3% in the Nasdaq Comp was ostensibly on the weaker manufacturing PMI number, which came in below expectations at 47.2 v 47.5, and was the weakest in 7 months. However, looking at the broader picture the same manufacturing index has been below 50 for 21/22 months – we have been in a factory recession for a while now. The American economy is 70% services and consumption so by itself manufacturing indices are not a great indicator of the overall economy. The only silver lining was the employment index, which is part of the same study – that was slightly better for August at 46, compared to 43.4 for July.

Why did the market fall so steeply then – there were declines across the board, no industry/sector spared – the rout was complete. The advance decline ratio was terrible at 770 to 2,029 for the NYSE and and a worse 963-3,346 for the Nasdaq.

Besides the PMI I suspect there were other techical forces at play.

We opened after a long break and thin volumes due to summer vacation and thinnly manned trading desks.

Now that interest rate cuts are confirmed the health of the economy will the prime focus.

Computerized, algo trading was a huge factor yesterday – the VVIX, which simply put is a derivative of the VIX (Volatility index) shot up to 137.64, triggering and escalating selling in a doom loop. The exposure was very high in semis and M7 dominated ETF’s, and given Nvidia’s relative small beat and subsequent poor stock performance after earnings exaggerated the situation. The leveraged product rebalance, was especially painful [given] the concentration of the assets, with semi and big-tech vehicles selling into the lows of the day.

The VVIX outperformance compared to spot was as high as August 5th – the day of the Japanse carry trade crash….

Given that we’re only two days away from the payrolls report on Friday Sep 6th, I suspect that we could see a further drop till there is some vindication that the economy is not going to hell. Traders, and investors are understandably worried about a possible recession and the market has been stretched for a while. There’s no point being caught in algo trading/volatility trading crossfire.

We’ll take a look at unemployment claims and the ADP report tomorrow, I’ll update after that.

Tags AI, Artificial Intelligence, Cloud Service Provider, Microsoft, MSFT

AI Stocks

Alphabet Antitrust Ruling

Post author By Fountainhead
Post date 08/30/2024
No Comments on Alphabet Antitrust Ruling

Alphabet (GOOG) (AI) $164

Yes, I did recommend Buying around $140-160. I own some and last bought in the mid $150s.

The anti-trust judgement has hurt but lets look at some possible outcomes. The judge is still deciding about remedies and this in my opinion a Behavioral Remedy is a likely one.

He would ban the The Internet Services Agreement (ISA) between Google and Apple, wherein Google pays Apple a share of its search ads revenue in exchange for Apple preloading Google as the exclusive, out-of-the-box default GSE on its mobile and desktop browser.
There will likely also be restrictions on auction pricing, since this was clearly abusive.
The proposal that Google not prefer its own services in search results will also likely be adopted.

This cost Apple roughly $20Bn in 2022. But as Eddie Cue from Apple stated” “No price that Microsoft could ever offer Apple to make the switch, because of Bing’s inferior quality and the associated business risk of making a change. I don’t believe there’s a price in the world that Microsoft could offer us. They offered to give us Bing for free. They could give us the whole company.”

Pretty strong words! We would end choosing Google Search anyway….

This cost Apple roughly $20Bn in 2022, but Google saves this money on Traffic Acquisition Costs. In the near term, I think Google comes out ahead, although the top line could see some decline as some folks choose another Search Engine. Loosing the search monopoly but still being a more profitable market leader.

If the judge suggest breaking up the company – then yes, its not so straightforward, and it will likely tank on the day of the news, and we’ll have analyze it from a different angle – simply because Search is the cornerstone of their entire business. But then there are the inevitable appeals.

I’m holding for now.

Tags AI, Alphabet, Antitrust Case, Artificial Intelligence, Cloud Service Provider, GOOG, Google

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.

Tags AI, Artificial Intelligence, Cloud Service Provider, Microsoft, MSFT