Should Investing in Cameco Shares be Considered?
Nuclear power is experiencing a comeback recently. Within the past year, 31 nations have endorsed the Declaration to Triple Nuclear Energy, vowing to triple their nuclear energy capacity by 2050. Major financial institutions such as Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley have joined the bandwagon, strengthening this resurgence.
This surge in support aligns with the constant demand for energy from the tech sector, indicating that nuclear power will likely be a critical component in the future of clean energy. One of the key players in the uranium sector, Cameco (CCJ -5.80%), could flourish as perceptions about nuclear power shift.
Considering the estimated growth in global nuclear energy demand over the next few decades, does this present a good opportunity to invest in Cameco? Let's delve into the business, explore the industry, and predict future trends.
Nuclear energy is gaining traction once more
The recent rise of artificial intelligence (AI) has driven unprecedented growth. As AI continues to evolve, the need for energy has skyrocketed, leading to an increased demand for power-hungry data centers. Goldman Sachs predicts that this could result in a breathtaking 160% increase in data center power demand by 2030.
To meet these growing power requirements, tech giants are collaborating with nuclear energy providers, marking a significant change in how we think about energy consumption within the tech sector. Last month, Microsoft attracted media attention through a 20-year power purchase agreement with Constellation Energy. This agreement includes the intriguing possibility of restarting Three Mile Island Unit 1.
Oracle is pushing the envelope even further by designing a cutting-edge data center powered by small modular reactors (SMRs). Although this promising technology may not enter commercial use for a few years, its potential has the capacity to revolutionize how nuclear power is implemented.
Building on this momentum, the recent approval of the ADVANCE Act by Congress is a turning point. This legislation aims to reduce regulatory costs and offer financial incentives to companies innovating in nuclear reactor technologies.
Cameco is a major player in the uranium industry
The resurgence of nuclear energy signifies a significant transformation in the global energy landscape. After years of hesitancy and re-evaluation of nuclear power following the Fukushima Daiichi disaster in Japan in 2011, many nations are rediscovering their interest in this carbon-free, clean energy source.
Cameco is a prominent figure in the nuclear industry and one of the largest publicly traded companies in this sector. Its operations in Saskatchewan and the United States are bolstered by a 40% stake in a joint venture with Kazatomprom in Kazakhstan. It also owns a 49% share in Westinghouse, a leading name in the nuclear services sector, in partnership with Brookfield Renewable Partners.
Cameco operates two mines at Cigar Lake and McArthur River in Saskatchewan and runs one of the largest commercial refineries in the world in Ontario. The company, projected to produce 23.1 million pounds of uranium this year, is well-positioned to meet strong demand when supply is limited due to underinvestment in development and exploration, combined with the recent U.S. ban on Russian uranium imports.
Keep this factor in mind when investing in commodity producers
Uranium prices, influenced by market dynamics, are an essential focus. Negative public sentiment towards nuclear energy could render the industry and its primary players vulnerable to falling prices and resulting decreased earnings.
For instance, between 2011 and not too long ago, many countries significantly reduced their nuclear power reliance following the Fukushima disaster. This coincided with an increase in uranium production. Consequently, uranium prices, along with Cameco's stock price, significantly declined.
Long-term trends support investing in Cameco
Despite this risk, longer-term trends lean positively towards the industry. Recently, the International Atomic Energy Agency (IAEA) revised its forecasts for the future expansion of nuclear power, projecting a possible 2.5-fold increase in nuclear capacity by 2050.
Short-term trends appear promising as well. Although no immediate plans for constructing new reactors in the United States exist, efforts are underway to boost demand through various means, such as increasing existing plant capacities, extending their operational lifespans, and reactivating retired nuclear facilities.
Next year, Citi anticipates an average uranium price of $110 per pound as demand escalates, while supply struggles to keep pace. As one of the world's largest uranium suppliers, elevated prices and the longer-term push for clean, dependable nuclear energy bodes well for Cameco.
Given the predicted 2.5-fold increase in nuclear capacity by 2050 according to the International Atomic Energy Agency (IAEA), investing in companies like Cameco, a major player in the uranium industry, could be a strategic move. With major financial institutions backing the resurgence of nuclear power and tech giants collaborating with nuclear energy providers for their energy needs, the demand for uranium is expected to increase.
Recognizing the potential impact of AI on energy demand, Goldman Sachs predicts a 160% increase in data center power demand by 2030, which could drive a higher demand for nuclear power as a clean and reliable energy source. This trend, coupled with regulatory changes like the ADVANCE Act that support nuclear reactor technology innovation, could indeed present an opportunity for investors in companies like Cameco.
