Nuclear Power Stocks: A Cautionary Tale
As the world shifts towards cleaner energy sources, nuclear power has emerged as a hot investment theme. However, some hedge fund managers are sounding the alarm, warning that the sector’s stunning rally this year has led to overvalued stocks.
A Reality Check
Sydney-based Tribeca Investment Partners and Segra Capital Management in Palm Beach, Florida, are among the funds that have recently trimmed their bets on nuclear technology developers and utilities. Guy Keller, a portfolio manager at Tribeca, expressed concerns about the sector’s rapid growth, stating that it makes sense to “bring my risk down.” While he wouldn’t build a short position, he acknowledged that a single data-center announcement could send stocks soaring.
The Rise of Nuclear Power
The increasing demand for artificial intelligence and data centers has tied the future of nuclear power to the growth of Big Tech. Green-oriented investors have also started to see nuclear as a necessary part of the low-carbon energy transition. Stocks like Constellation Energy Corp. and NuScale Power Corp. have seen significant gains, with Constellation almost doubling this year.
A Word of Caution
Lisa Audet, founder and chief investment officer of Tall Trees Capital Management, remains cautious about small modular reactor developers like Oklo Inc. and NuScale, despite their recent price corrections. Short interest in these companies remains high, with Oklo at 17% and NuScale at almost 15%, compared to less than 1% for Constellation Energy.
The Challenges Ahead
A team of JPMorgan Chase & Co. analysts published a report warning of the risks surrounding nuclear stocks, citing “inherent challenges” such as uranium supply-chain constraints and the time it takes to develop nuclear power. The report coined the term “NucleHype” to describe the current market sentiment.
Opportunities in the Value Chain
Some hedge fund managers are finding opportunities in other parts of the value chain. Arthur Hyde, a portfolio manager at Segra Capital, believes that the “fragile and fragmented” supply chain for uranium will lead to positive price pressures for the commodity in 2025. Uranium prices have fallen about a third from their February peak, making some mining companies oversold.
A Shift in Strategy
Segra Capital scaled back its holdings of US utilities and technology companies in the fourth quarter, adding to its exposure of uranium producers and mine developers in the US, Canada, and Australia. Tribeca’s Keller has tilted his fund towards uranium assets, betting that Big Tech will eventually expand its investments into the supply chains needed to power nuclear plants.
A Pro-Nuclear Stance
Both Segra Capital and Tribeca are constructive about President-elect Donald Trump’s stance on nuclear, with Keller stating that he boosted his fund’s exposure to US project developers on the basis that the incoming president may provide preferential treatment to domestic companies.
Leave a Reply