Morgan Stanley names three beneficiary stocks of the "nuclear renaissance"

Morgan Stanley has named three favorites among companies that supply electricity from nuclear reactors. These players may become beneficiaries of the development of artificial intelligence. The investment bank believes that the construction of data centers for AI will lead to an increase in the margins of the nuclear power business. In its assessment, there is a "nuclear renaissance" taking place in the world, and the opportunities for investors are significant.

Nuclear energy suppliers such as Talen Energy, Public Service Enterprise Group and Vistra could benefit from growing demand from the AI industry, limited nuclear generation capacity and government support, according to Morgan Stanley equity analyst David Arcaro, as quoted by Investopedia. AI requires large amounts of energy, while nuclear power gives stable prices, reliability and efficiency. The bank analyst notes that the market is still underestimating its long-term benefits, but technology giants have already paid attention to it.

"Large IT companies are increasingly willing to pay a premium for nuclear power," writes Arcaro. Over the past year, Microsoft, Amazon, Alphabet and Meta have struck deals with nuclear operators like Constellation Energy Group and Talen Energy. According to Morgan Stanley, hyperscalers are agreeing to surcharges of $30 to $50 per megawatt-hour, and up to $70 per megawatt-hour if a data center is located near a nuclear plant.

It can become a catalyst for securities of Vistra and Public Service Enterprise Group. Morgan Stanley expects news about such contracts in the near future. But Talen Energy has almost all of its capacity already contracted by Amazon Web Services, so no new agreements are expected, the analyst notes. Nevertheless, he predicts that demand from AI and capacity constraints will push nuclear power prices up, which will boost the profits of Talen, Vistra and Public Service Enterprise Group.

For all three shares, the bank maintains an "above market" recommendation, equivalent to a buy recommendation.

The world is experiencing a "nuclear renaissance," according to Morgan Stanley, and they note that this creates great opportunities for investors. According to the bank's analysts, the growth rate of nuclear power has accelerated compared to last year, and investments in it until 2050 will amount to $2.2 trillion. A year ago they were talking about $1.5 trillion.

Over the next five years, electricity rates for homes and businesses on the largest U.S. power grid, operated by PJM Interconnection, could jump 60 percent as the data center needs of large technology companies continue to grow, according to analysts cited by Reuters. At the same time, new sources of electricity are being added to the grid at a slower pace than demand for them is increasing.

US President Donald Trump has made energy security a key priority of his second term. In May, he set a goal to increase the country's nuclear capacity from the current 100 gigawatts to 400 gigawatts by 2050. He has already signed several decrees accelerating the construction and expansion of nuclear capacity, Investopedia recalls.

"The twin agendas of decarbonization and energy security, as well as the declining number of investors excluding nuclear from their portfolios and improving financing conditions, all make nuclear power a truly global investment theme," Morgan Stanley said.

According to the bank's data at the end of last year, only 2.3% of global assets under management of investment and pension funds fell under the policy of exclusion of nuclear energy, i.e. such investments were subject to a ban. This is less than in the case of investments in alcohol or arms manufacturers, notes Investopedia. In June, the World Bank lifted the ban on financing nuclear projects, which may open the way for similar decisions by other international financial institutions, the publication predicts.

This article was AI-translated and verified by a human editor