2 Nuclear Stocks Poised to Benefit From Rising AI Adoption

Investment banks and a variety of other research firms are banging the drums on nuclear energy.

"After decades of underinvestment, a convergence of generational technological breakthroughs, intensifying geopolitical competition, and the need for clean, dense, reliable power are positioning nuclear energy for a renaissance," concludes a recent report from Goldman Sachs.

"[N]uclear energy has, in many ways, been recently 'rediscovered' amid surging electricity demand," adds Bank of America. "Compared with other energy sources, it offers reliable baseload power, a smaller carbon footprint, and a higher energy return on investment."

Morgan Stanley analysts agree. "Nuclear power generation is experiencing a revival driven by ambitious climate goals and technology demands," the bank's analysts observe. "After more than a decade of decline, nuclear power is making a comeback, potentially bringing investment opportunities across the entire nuclear value chain."

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Unsurprisingly, analysts from Citigroup are also one board. "Nuclear energy, one of the largest low-carbon sources of electricity, is poised for global growth thanks to such drivers as the potential acceleration of new technologies, net zero aspirations, and the importance of low-carbon sources of power," reads one of its more recent reports.

Citigroup is particularly excited about a novel form of nuclear energy: small modular reactors, or SMRs. Think of these systems as miniature nuclear power plants -- easier and faster to build with lower initial costs and a great ability to co-locate smaller physical footprints with other infrastructure. "Use cases for SMRs are gaining traction," Citigroup concludes, "with the U.S. an extremely attractive market for baseload power."

Want to expose your portfolio to rising demand for nuclear energy, and in particular to early stages of SMR adoption? The two stocks below are perfect fits.

These two stocks are all in on nuclear energy and SMRs

Perhaps the cleanest way for investors to buy into SMR adoption today is through two stocks: NuScale Power (NYSE: SMR) and Oklo (NYSE: OKLO). Both companies are invested heavily in bringing SMRs to market, though they do have their differences.

Oklo is most directly exposed to the AI industry's need for more energy. Sam Altman, the CEO of OpenAI, invested in Oklo early, serving as its chairman for many years. It's no wonder Altman got involved. His company -- the progenitor of ChatGPT -- is desperate for new energy sources. And Oklo's systems can be built directly next to data center infrastructure, providing clean, reliable power that can go years, or even a decade or longer, without refueling.

The company's 14 GW pipeline is full of big tech and data center clients. However, it should be noted that Oklo has yet to receive approval from the U.S. Nuclear Regulatory Commission for its SMR designs, nor has it ever successfully commercialized one of its SMR designs.

NuScale is taking a less direct approach by pitching its systems directly to utilities. In the U.S., for example, it has agreed to build a 6 GW system for the Tennessee Valley Authority. While NuScale does have approval from regulators to build this system, it would be the company's first successful project. A binding power purchasing agreement also has yet to be signed, adding some uncertainty about whether the project will ever see the light of day.

The growth of AI adoption is clearly spurring a need for more energy sources. This need should persist for decades to come, and nuclear is a great fit. While less proven, SMR systems seem like a perfect match for adding reliable and renewable energy to the grid quickly. But there are many hurdles still to be cleared -- everything from regulator approval to actual construction of each company's customer pipeline.

Still, both NuScale and Oklo have market caps under $10 billion after a steep correction. In general, Bank of America values the global nuclear opportunity at $10 trillion over the next couple of decades. SMRs will only play a minority role in that overall opportunity. But it's not hard to see how both NuScale and Oklo have significantly upside potential should their respective growth trajectories go according to plan.

There is plenty of risk involved. But both Oklo and NuScale are great picks for risk-tolerant investors wanting to expose their portfolio to both rising AI adoption and a relatively novel form of nuclear energy.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.