What Every Nucor Investor Should Know Before Buying

Nucor (NYSE: NUE) stock has recently surged, helping shares of North America's largest steelmaker far outpace the S&P 500's (SNPINDEX: ^GSPC) return thus far in 2025. Nucor stock has jumped 15% since it reported strong third-quarter results, bringing its year-to-date return to 42.8% (versus the S&P 500's 17% gain).

Steel is a cyclical sector, and several catalysts could propel Nucor stock even higher through the cycle. However, there are also factors that investors should consider before investing in the steel sector at this time.

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Big projects are planned

A construction cycle is beginning to boost the steel sector. In its third-quarter earnings call, Nucor management highlighted "high-growth markets, like data center construction" as an ongoing catalyst for its business.

It's not just data centers providing long-term growth potential, either. Companies in areas beyond technology are planning expansions. Pharmaceutical giant Eli Lilly has just announced details for a third new facility as part of its plan to build four new manufacturing plants in the U.S. Construction of this $6 billion investment is expected to begin in 2026.

It will be located in Huntsville, Alabama, approximately 30 miles from the city of Decatur. Nucor has a major flat-rolled steel mill in Decatur, so it would make sense that it will participate in the Eli Lilly project.

A commodity business

Those significant capital investments sound like great news for steel companies like Nucor. But there is another aspect investors need to keep in mind. Like any commodity, steel pricing is driven by the dynamics of supply and demand.

As construction project announcements signal growing demand, steelmakers are making plans to boost supply. Nucor itself has a major new steel mill under construction in West Virginia. The company says it is on schedule to begin ramping up production by the end of next year.

Nippon Steel is reportedly planning for its U.S. Steel subsidiary to select a location for a new $4 billion steel mill investment. That would add approximately 3 million tons of annual domestic capacity.

But building new steel mills takes years. The Nippon project is reportedly expected to have a site selected by early 2027. Nucor's new West Virginia mill is expected to be in operation by then. Regardless, adding capacity and even future expected capacity could drive steel prices down. That would hurt Nucor's profitability, as well as that of its peers.

Overall, an expanding economic and construction cycle would be bullish for Nucor. It is one of the most efficient and profitable steel companies. Lower steel pricing will hurt domestic mills like Nippon's U.S. Steel more than Nucor. Investors should be aware, however, that profitability could be impacted as domestic steel capacity increases in the coming months and years.

Howard Smith has positions in Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.