Nuclear Energy Gets a Big Government Boost (Again)

0:01Tyler Crowe:Nuclear stocks are going nuclear today on Motley Fool Hidden Gems Investing.

0:12Tyler Crowe:Welcome to Motley Fool Hidden Gems Investing. I'm your host Tyler Crowe and today I'm joined by longtime Fool contributors Matt Frankel and Jon Quast. Nuclear has been in the news lately and so we're going to be diving into some recent announcements related to federal government incentives at getting into the nuclear industry and trying to drive that further. We're also going to take some listener questions related to the energy space as well. But there's a lot of headline news going on these days. Not like giant earth shattering news, but, you know, a nice smorgasbord of news stories today. We had the Micron earnings recently.

0:45Tyler Crowe:And what we want to do is just kind of do a quick round of room of stories that we saw that were kind of interesting and why you think they matter. John, I want to start with you. What did you see recently? You were like, huh, that was interesting.

0:56Matt Frankel:Well, yesterday, Qualcomm had its Investor Day presentation. Qualcomm, of course, a huge semiconductor company. And the thing that stood out to me was it's launching a data center platform. Now, Qualcomm is known as more of a mobile device player. Its Snapdragon chips are in a lot of mobile devices, and that's really where its bread and butter is. but saying that it's launching a data center platform now, and it's targeting about$15 billion in revenue by 2029. And for perspective, the company has about$45 billion in total trailing 12-month revenue right now. So adding$15 billion to that top line number is pretty significant.

1:40And I think what stands out to me is for investors, a lot of investors are starting to question,

1:46Matt Frankel:where are we in this AI infrastructure build out? Is it too late when it comes to data centers? And Qualcomm is a$200 billion company and just now throwing its name in the ring as a contender in this space, just now getting in. So to me, that's a strong signal that maybe this AI data center build out still has a lot of legs to it because a huge player just jumped into the game.

2:10Tyler Crowe:certainly with so many of these semiconductor industry companies with market caps now north of a trillion dollars 200 billion sky almost sounds puny by comparison so one of the questions i immediately had when you know we were discussing this pre-show was does qualcomm have the production capacity support this or is it just shifting sales from one place to another you know we've seen story like micron says they're almost sold out for a couple years taiwan semi says they're sold out Apple's raising prices on their products just because of high memory costs and semiconductor costs. I'm wondering if this is a lot of companies saying we're getting into data centers with chips, but getting production lines up and running takes quite a bit of time.

2:55Matt Frankel:Yeah, it does. I should have said in my opening statement here is that one of the reasons why Qualcomm believes it's not too late is because it really sees this agentic AI trend really just starting to inflect now. And AI agents, basically, they can make 50 to 100 times as many inference requests as a human. That's kind of your big headline number, which means a lot more CPUs are needed now than what were needed before to make all this run. So there's really kind of a CPU bottleneck going on. Maybe it's already been talked about a lot. But Qualcomm here jumping into this ring with its data center CPU, the Dragonfly C1000, and announcing that Meta already signing up to be a customer of this product.

3:40Matt Frankel:So I think that's significant. That said, this particular data center product isn't supposed to reach production until 2028. And so that's a little bit out into the future there. Now that's not carrying the entire 15 billion target revenue number on its own, but it will play a part of that. So 2028 is kind of the target number for getting that thing off the ground. Now, you look at players like Taiwan Semiconductor. This is a huge partner of Qualcomm. It's saying that it's kind of constrained until at least 2027. So maybe there's a path where supply and demand start to balance out a little bit by the time Qualcomm is wanting to ramp this particular product.

4:20Matt Frankel:Of course, Qualcomm does have a good relationship there. But I think kind of the other things here to keep in mind is that there are some rumors that Qualcomm and others are actually exploring Samsung foundry because Taiwan Semi can't meet all the demand that there is. And so maybe there's some ways that Qualcomm can get around some of these supply constraints and still meet its production goals.

4:43Tyler Crowe:Everywhere we go, there's a bottleneck somewhere. Matt, what is on your mind today?

4:49Jon Quast:Yeah, so in addition to all the bottlenecks we're seeing everywhere, we're also seeing chip making reach kind of its physical limitations. There's only so small you can make, you know, semiconductor components. And IBM just had some really significant news. I know you correctly mentioned before we were recording that, you know, IBM isn't the name you normally associate with cutting edge chip technology, but maybe it should be. IBM announced that the world's first sub one nanometer chip technology. This is a big deal for the chip industry if it ends up actually reaching the commercial phase. But the chip uses a new what they call the nanostack architecture.

5:27Jon Quast:What it does is instead of making everything on one layer, it vertically stacks and staggers transistors, which gives roughly two times the density of IBM's previous chip architecture. So it's expected to result not only in 50 % higher performance, but 70 % greater efficiency than current chip technology, which could be a big deal, especially considering the power bottlenecks that you're seeing in the data center infrastructure build out. So just for scale, their architecture precisely is 0.7 nanometers. That is roughly one ten thousandths of the size of a human red blood cell. That's how small these transistors are.

6:04Jon Quast:And it's really, it's quite an accomplishment.

6:07Tyler Crowe:Sounds like it's going to be one of those breakthroughs. And it almost really follows like the boars law thing where our you know density and capacity sort of doubles every few years or so one of the things that you're thinking about is obviously ibm not a foundry doesn't make their own chips they license a lot of what they do and so when we're thinking about as this a needle moving sort of thing for ibm or the industry writ large how would this kind of stack up to the competition and obviously this is relatively new news is this something we could foresee actually impacting IBM relatively soon?

6:40Tyler Crowe:Or is this like maybe a few years, we'll see something here?

6:43Jon Quast:Well, yeah. So to be clear, this is still at the research level. This is IBM's research division that made this announcement, not like a product team or something like that. It is a big milestone, but IBM is specifically calling out commercial production within five years. So, you know, there's still a little ways off. And like you said correctly, IBM licenses its chip design technology. It could ultimately result in a pretty big revenue stream for the company. But this is also how it makes its own server chips and things like that without doing it in-house, like Samsung, Global Foundries are a couple of the companies that it uses.

7:16Jon Quast:Just to compare this to something like NVIDIA, NVIDIA's most advanced chips have about a 1.6 nanometer architecture. So it's significantly smaller. The power consumption in my mind is really the big story because at a time when new data centers are seeing power delays left and right, and there's a four to six year backlog of being able to connect to the grid to get enough power for these something that's 70 more energy efficient could be a big deal well speaking of

7:41Tyler Crowe:power you set up the transition really well here after the break we're actually going to talk about some of the things that may be powering some of those future data centers with some big government money being thrown at it and that's nuclear coming up after the break

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8:34Tyler Crowe:All investments involve risk, including the potential loss of principle. Past performance is not indicative of future results. This is a paid advertisement. Nuclear power has been in the spotlight for well over a year now between new age nuclear technology stocks coming to market, venture capital throwing gobs of money at some of these concepts. And the federal government is now setting goals of expanding nuclear energy for the first time in I can't remember how long. So just about every company somewhat related to nuclear power has have seen their stock surge on investor enthusiasm in this particular space.

9:10Tyler Crowe:And there was even more reason to cheer because the federal government made a new announcement for a loan program that could, you know, actually accelerate a lot of this development. Now, I've been somewhat dubious of the prospects of this for few reasons. But But between this recent announcement and some of the other prior deals, the numbers are really starting to stack up and become overwhelmingly in favor of more nuclear. John, can you run us through the details of this new loan program? Because it is pretty exciting.

9:41Matt Frankel:Yeah, I think from a high level, the Trump administration doesn't want to play second fiddle to anybody when it comes to nuclear. And so there is a lot of push from the top here in the country to make this a reality. And to set the stage a little bit, there is geopolitical pressure here because there are reports that China actually has more nuclear facilities under construction right now than any other country in the world. So that certainly doesn't sit well with the Trump administration. May of last year, Trump signed an executive order to get some of these newer programs out of the test phase.

10:17Matt Frankel:And really interesting, last month, Antares nuclear, its Mark Zero reactor reached criticality. And that has not happened in 40 years for a new reactor of this kind to reach that milestone. So it is making significant progress. And now more recently here, the$17 billion loan that you point out, essentially, it's low cost of capital for these companies that want to make a reactor or bring it to life. The Trump administration wants 10 big nuclear reactors by 2030. And I think that that's a really important thing to point out. A lot of these small startup nuclear stocks that we're seeing, they're pursuing micro reactor.

10:59Matt Frankel:That's a different ballgame than what the Trump administration is pushing for. These very large nuclear sites looking to fund 10 of these five different projects. And so, yeah, when it comes to these things, I mean, the Westinghouse AP1000 reactor, is really your only viable option for that. I believe it's the only licensed option and that parent company is Cameco, ticker symbol CCJ. So that's kind of what's happening here. To make this happen, there has to be the money and the government is saying, we'll give you the money if you can make it happen.

11:32Tyler Crowe:Yeah, Westinghouse, it's a 50-50 between Cameco and one of the, I know it's in the Brookfield wider universe of companies. It's probably a little bit in the renewable business, a little bit in the asset management. It's kind of spread all over the place. Like you said, this is like the big ones. We're talking, you know, an AP1000 will basically like power a midsize city or, you know, based on like the announcement we saw from Chevron with that 2.3 gigawatt, you know, facility, it can run like half a very large data center. Again, it talks to how big this kind of power opportunity that we have here in the demand that we're seeing from AI.

12:10Tyler Crowe:So Matt, as we kind of peel back the layers here, Obviously, you know, the Westinghouse, Cameco, and you look at like the Brookfields of the world. These are companies that automatically people are going to jump to because they're literally named in the development for these particular loans. But there are also going to be other people involved, a lot of companies that are going to actually own these facilities or some of the people that are going to be helping. So as we drill down into the sector, who's going to actually like benefit here?

12:42Jon Quast:Well, I own Brookfield in my portfolio, so you're saying that I'm in a pretty good position here. But beyond that, there are a lot of companies that could be kind of more adjacent beneficiaries of this. The question is, we don't know yet. We don't know who's going to get the contracts for these nuclear reactors. But Constellation Energy is really kind of a front-runner, ticker symbol CEG. They are already the largest nuclear operator in the U.S., and they have long-term energy supply deals with companies like Walmart, are really kind of providing, already committing to providing the power for the AI build-out.

13:13Jon Quast:They're a top candidate to get one of the new reactors. GE Vernova could be a big beneficiary. They provide turbines and other equipment that are used in nuclear plants. Companies focused on power infrastructure because it's not just building the plant, it's getting the power to its end user. Qantaservices, ticker symbols PWR, that does grid and transmission work, for example. So a lot of these kind of behind-the-scenes

13:37Tyler Crowe:plays could be big beneficiaries i want to push back just a little bit like you're saying on these on these beneficiaries though because we you know there's the tech i would call this the ten thousand dollar question is does any of this actually move the needle for like those companies for constellation and ge vernova you know constellation already has a massive generation capacity fleet we've mentioned that before uh ge vernova you know they seem they can't seem to keep up with gas turbine demand for ai data centers they're projected to be already out until 2031 who knows when they'll be able to actually make one for a nuclear facility.

14:10Tyler Crowe:So is a few reactors really going to be a part of the thesis for these companies? I mean, it seems like the nuclear energy industry needs these companies more than these companies need nuclear energy.

14:24Jon Quast:Yeah, well, I mean, I would argue that the low cost of capital could be a needle mover for some of these companies because, you know, it really reduces borrowing costs. It could be a major margin improvement, even if it's kind of an incremental change. But I would really kind of say that the picks and shovels plays like that quanta services that i mentioned um like companies that participate in in other forms of the build out like even like concrete companies that specialize in in in power plants the picks and shovels companies are the ones that are really likely to see a needle moving effect here it's just a question of who because as you mentioned there were very few companies actually named uh you know westinghouse very very few companies actually named in the announcement.

15:05Matt Frankel:Yeah, I mean, it'll be interesting to see. They are creating some special purpose vehicles to build out these five major projects. And so it really does depend on, I could see there being some smaller players that get part of these jobs that for them, it actually is quite a significant needle moving event. But as you point out, some of these energy companies are quite large. And so maybe a single nuclear reactor, though that is significant, as far as the national security aspect goes, but from a business point of view, maybe not a huge material driver of results.

15:41Tyler Crowe:While we're on the topic of nuclear, we actually got a listener mailbag and we'll hit that after the break.

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17:07Tyler Crowe:Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com. Everyone, here's a quick reminder. If you want to get a question in, we love answering them on air. go ahead and send your questions to podcasts at fool.com. That's podcasts with an S at fool.com. Three rules as always, keep it foolish, keep it short enough to read on air, and don't ask us for any personalized advice so we don't get in trouble with the SEC. This is actually an older question, but because we were talking about nuclear, I wanted to bring it back up and I thought it was an appropriate time to answer it.

17:42Tyler Crowe:And this is from Adam Ragor. And I modified the question a little bit, but the question was, is thoughts on how young investors and probably focus on the young part should capitalize on the energy boom. And there was a little bit of a bonus here because we were talking about nuclear and he asked specifically about a couple of the small modular reactor companies that are out there. One of them's Ocklo, ticker O-K-L-O, and New Scale Power, ticker SMR.

18:08Jon Quast:Yeah. So, I mean, it's a great question because this is according to Goldman Sachs. So data center power demand is going to grow 160 % by 2030. And data centers need virtually 100 % uptime. You can't have that go down. Claude went down for about 30 minutes the other day, and you would have thought the internet ended. Through 2030, it's estimated that$1.3 trillion of this CapEx we're hearing from the hyperscalers is just going to be spent on power generation and related infrastructure. So although I am a believer in small nuclear reactors as a long-term solution, you're not going to find the companies like Oclo that are essentially pre-revenue nuclear startups in my portfolio.

18:48Jon Quast:Although to be fair, that might be different if I was in my twenties, not in my mid forties. Um, but even when you're focusing on established profitable businesses, there are some really good options. I mentioned Constellation Energy earlier in the show, uh, for real nuclear exposure. Now, uh, solar is going to be more of a near-term solution in my opinion. And first solar ticker symbol FSLR, they're a fast growing domestic company. So they don't have tariff concerns that a lot of other solar operators do. And they're in an excellent financial position right now. But solar doesn't work 24-7. So a battery storage play could also be worth a look.