AI Factory Fortunes: Constellation Energy (CEG)

Welcome to AI Collision 💥,

In today’s collision between AI and our world:

• Microsoft inks a big power deal
• Meta inks a big power deal
• An unexpected but lucrative flip

If that’s enough to get the nuclear sciencing, read on…

AI Collision 💥

Welcome to another of our AI Factory Fortunes deep dives, where we look to the power side of the AI infrastructure equation.

So far, we’ve focused on companies providing compute and hosting. But advanced AI also guzzles enormous amounts of electricity, and ensuring a stable, green supply is critical.

Enter Constellation Energy (NASDAQ: CEG), the United States’ largest producer of carbon-free power (primarily from nuclear plants).

Constellation is striking landmark deals with tech giants like Microsoft and Meta to fuel their AI data centers with clean power – effectively making Constellation a linchpin in the AI factory supply chain.

In the past year and a half, Constellation has signed unprecedented long-term power purchase agreements (PPAs) with Microsoft and Meta aimed squarely at feeding the growing energy appetite of AI data centers.

These aren’t your garden-variety solar contracts either, they involve nuclear energy (including a highly controversial one) which is a testament to how serious the power needs have become and the priority to get it from carbon-free sources.

In September 2024, Microsoft and Constellation inked a 20-year PPA to revive the 835 MW Unit 1 of Three Mile Island (TMI) nuclear plant in Pennsylvania by 2028.

This was historic. The TMI Unit 1 had been shut down since 2019 for economic reasons. But Three Mile island was of course the location of one of the biggest U.S. based nuclear disasters ever, a partial melt-down of its TMI-2 unit.

Nonetheless, even with the stigma of Three Mile Island attached, and the assumption that TMI-1 would be shut down forever, Microsoft’s huge commitment effectively financed its restart.

It ensures Microsoft will get a steady supply of nuclear-generated electricity for decades. The goal? Power Microsoft’s AI data centers with around-the-clock carbon-free energy. By restarting a dormant reactor, Constellation also prevents the loss of an existing asset and signals that even mothballed nuclear capacity can be resurrected in service of the AI era.

And let’s not forget this isn’t something that’s going online tomorrow, this is 2028 we’re looking at, and then decades of energy from there.

So, do you think Microsoft enters a deal like this unless they know for certain the AI rollout is only going to accelerate and demand for power increase?

Not to be outdone, in June this year Meta signed a 20-year agreement for 1,121 MW from Constellation’s Clinton Nuclear Plant in Illinois.

Starting in 2027, Meta will offtake roughly a gigawatt of nuclear power to support its AI and data center expansion.

This PPA effectively extends the life of Clinton Station (which had been at risk when an Illinois zero-emission credit was set to expire) by providing a new private-sector revenue stream.

Meta openly said it went looking for up to 4 GW of new nuclear capacity to meet its AI ambitions – a massive indication that renewables alone can’t always cover the ultra-steady, high loads AI centers demand.

Through Constellation, Meta found a solution that is both carbon-free and reliable 24/7 (nuclear plants run at high output continuously).

These deals have some common threads. They are long (20-year terms), large-scale (800+ MW each), and explicitly tied to supporting AI and cloud infrastructure.

They also each enable something strategic for Constellation.

Microsoft’s PPA funds the restart of TMI Unit 1, and Meta’s PPA replaces state subsidies to keep Clinton running and even allows a small uprate (adding ~30 MW) and preserves jobs.

In essence, Big Tech is stepping in to bankroll nuclear plants domestically in exchange for clean power, and Constellation is the conduit making it happen.

For Microsoft and Meta, partnering with Constellation kills two birds with one stone.

It secures huge blocks of power for future AI growth and ensuring that power is carbon-free to meet their own corporate responsibility commitments.

And let’s also not forget it forms part of the whole “onshoring” of U.S. domestic energy supply, American jobs, American investment.

Meta’s Urvi Parekh (Head of Energy) explicitly noted that, “this plant is an important piece to strengthening American leadership in energy.”

That’s a nod to playing nice with the current administration as much as it is a move into securing their own energy supply.

So yes, this is very much about AI and the insatiable energy demand, and there’s a healthy dose of politics involved too.

From an investor perspective, these long-term PPAs with giant hyperscalers like Microsoft and Meta are like gold. They lock in stable revenue for decades for Constellation. For example, TMI Unit 1 was shut due to poor economics in competitive power markets; now it will be economically viable thanks to Microsoft’s contract, presumably at an agreed price that makes it profitable to run.

That’s 20 years of cash flow largely insulated from the volatility of short-term power prices. Wall Street loves that kind of reliability, as does the long-term value investor.

There’s a good argument to be made that Constellation is becoming a kind of “AI utility”. Not that it sells AI, but that the AI boom is driving new demand for its product (clean electricity) and enabling projects (like plant restarts or uprates) that weren’t feasible before.

The upside is that assets previously considered liabilities (aging nuclear reactors) are now critical pieces in a modern tech-driven economy puzzle.

The narrative around nuclear in the U.S. has flipped from decline to renaissance, largely due to these headline-grabbing deals and the boom in AI.

Investors should note, however, that these are just two deals – albeit huge ones. The majority of Constellation’s generation still sells into wholesale markets. So, its fortunes are still tied to capacity prices, energy demand, etc.

But clearly, securing output under long-term contract with prime market darlings like Microsoft and Meta is significant.

Constellation Energy is stepping into a vital role in the AI era… keeping the factories of AI (data centers) powered, 24/7, without carbon emissions.

For a company that runs nuclear plants designed decades ago, finding itself at the cutting edge of AI’s growth must be an unexpected but welcome turn and also a highly lucrative one.

It’s a prime example of how the AI revolution extends beyond chips and code, and goes deep into the realms of steel, concrete, and nuclear science.

Warren Buffett’s Final Move

Two of the Oracle of Omaha’s most legendary moves has been into this market. First riding it to a 20-fold surge in the 1970s, then banking $97 million in the 1990s during a supply deficit.

Now, with the $15.7 trillion AI revolution driving massive demand and a critical Fed announcement expected September 17th, all signs point to Buffett making his third and final move.

GET BUFFETT’S FINAL PLAY HERE

Busters & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

*** it’s been a while since I’ve had to pull out the busters & busters header here, but the fact is absolutely nothing in the AI space is booming this last rolling week. It’s bust city, so, here’s the damage…

Bust 📉

• Cleanspark (NASDAQ:CLSK) down 29%
• Rigetti Computing (NASDAQ:RGTI) down 25%
• D-Wave Quantum (NYSE:QBTS) down 22%

Bust 📉

• Dell (NASDAQ:DELL) down 14%
• Xpeng (NYSE:XPEV) down 14%
• Vertiv (NYE:VRT) down 11%

From the hive mind 🧠

• Warns of impact of AI bubble bursting. Don’t trust the AI. These are bold, and scary claims, not from some random punter… but from the CEO of GOOGLE!
• The most important nuclear research since The Manhattan Project. It’s a big claim, but a handful of small U.S. nuclear start-ups are doing the work.
• It might feel like the AI bubble is bursting, yet there’s still millions of dollars getting thrown at AI start-ups at an unprecedented rate.

Artificial Polltelligence 🗳️

Weirdest AI image of the day

ChatGPT’s random quote of the day

Thanks for reading, and don’t forget to leave comments and questions below,

Sam Volkering

Editor-in-Chief

AI Collision