Constellation Energy Stock Soars on Google Nuclear Power Deals

Constellation Energy's stock surged on October 6 after Alphabet's Google signed two long-term power deals, highlighting the growing demand for nuclear energy to support AI's power needs. The first agreement is a 20-year deal for 890 megawatts of new nuclear capacity, while the second is a 15-year deal for 2,700 megawatts from existing plants, totaling about 3,590 megawatts in the PJM Interconnection grid.

The key aspect of these deals is that Constellation is not building new reactors but instead upgrading 11 existing reactors in Illinois, Pennsylvania, and New Jersey. This approach, known as an uprate, allows for more electricity to be produced from existing infrastructure, which is faster and more efficient than constructing new plants. The upgrades include improved turbines, steam generators, and digital control systems, with the first increment expected by 2028.

For Google, the speed of delivering new power capacity is crucial. Uprates provide a faster solution compared to the lengthy process of building new power plants and waiting for grid connections. The deals also align with PJM's 'bring your own power' proposal, encouraging large users to secure their own supply. Constellation benefits from a committed buyer for 20 years, revenue certainty for existing plants, and a repeatable model for future deals.

Investors should consider the long timeline and risks involved, including the undisclosed price of the deals and the execution of upgrades across multiple units. Despite a post-announcement rally, Constellation Energy's stock remains down double digits for 2024, reflecting lingering questions about the durability of hyperscaler demand for nuclear power.