Oklo Isn't Exactly an AI Stock. Here's Why I Love It Anyway.

Oklo Inc. (NYSE: OKLO) isn't strictly an artificial intelligence stock. Instead, it's better classified as a nuclear energy stock. But the company's connection to the AI industry is clear and direct.

Over the next few years, $7 trillion is expected to be spent scaling data center infrastructure. The pace and scale of this global build-out are unprecedented. While efficiency gains will undoubtedly be gained, data centers are inherently energy-intensive. And the current grid isn't nearly big enough to support the AI industry's future needs. In response, massive amounts of new energy generation capacity will be needed.

In many ways, nuclear energy is an ideal solution. "As countries now race to secure the massive amounts of energy needed for leadership in artificial intelligence, nuclear energy is newly positioned to meet the moment," a report from Goldman Sachs declares. "After decades of underinvestment, a convergence of generational technological breakthroughs, intensifying geopolitical competition, and the need for clean, dense, reliable power is positioning nuclear energy for a renaissance."

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

But here's the thing: Not all nuclear energy stocks will benefit. "[T]he next nuclear age will look different from the last," warns Goldman Sachs. While plenty of conventional power plants will be built, these facilities can often take a decade or more to build. That's too slow for the likes of the AI industry. The need for speed is causing renewed interest in a relatively untried form of nuclear: small modular reactors, or SMRs. SMRs are essentially miniature, scalable nuclear reactors. This is the exact technology that Oklo specializes in.

AI investors should strongly consider Oklo stock

Oklo isn't yet approved by regulators in the U.S. to build an SMR system. Oklo had previously submitted its designs to the Nuclear Regulatory Commission, but was denied in 2022. Oklo has since reapplied and has been moving successfully through the process.

A lack of approval hasn't stopped customers from signing deals with Oklo. Meta Platforms, for example, agreed to have Oklo build a 1.2 gigawatt SMR system in Ohio, though Meta has also signed deals with competing developers. The absence of a deal with OpenAI is somewhat of a surprise, given that Sam Altman, OpenAI's CEO, invested early in Oklo and served as its Chairman for a handful of years. Regardless, Oklo has garnered social validation from both industry insiders and major AI companies.

What I like most about Oklo's approach is that it's pitching its products directly to data center businesses. Other SMR competitors, for comparison, are marketing their systems to utilities, which would then deliver that power over the grid to data centers in a conventional manner. This strategy may also work. But the rapid growth in electricity demand isn't stemming from grid users in general; AI companies are by far the biggest culprit. So why not market directly to them, especially given their deep budgets and urgency, not to mention the unique ability of SMRs to be colocated with data center infrastructure?

Oklo will remain a speculative stock until it secures regulatory approvals and demonstrates it can translate its designs into real-world applications with proven costs. But the business model is undoubtedly exciting with huge long-term opportunities.

Bank of America is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.