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With that taken care of, let’s get the monologue started. The news cycle will be driven by the elections and the state of SMCI over the next two weeks. I went mini-viral on X after the Hindenburg Research report came out in late August on SMCI. There are murmurings that my article from May on SMCI was the basis of Hindenburg Research’s work and subsequently the reason for Ernest & Young to resign as SMCI’s auditor. In any event, if SMCI can’t find a new auditor by the 16th, they will get delisted.

My fascination with the “Defense Contractors” has to be kept in check till the elections are over. A Trump victory could have massive implications for that sector and it could tank. Did I say tank? Out come the trolls.

Nuclear Energy

As long-term investors, for the most part, we are always on the lookout for sectors or companies that have a long runway ahead. Nuclear energy fits the bill. Shunned publicly, however, nuclear plants were still built without much fanfare. After the Fukushima accident, many believed that nuclear was not going to make a comeback.

Despite nuclear energy being one of the cleanest forms of energy global leaders from their high chairs deemed it untouchable. So much so that some countries followed the diktats of unelected bureaucrats rather than listen to certified experts.

The real-world results of the lunacy against nuclear energy are there for everybody to see. Take the case of Germany and France. Germany went zero nuclear and France went on a binge, building new reactors. Germany’s energy situation is so unpredictable and dire that companies are closing manufacturing plants and moving to regions with predictable power costs. For reference here are the countries with the largest number of operable nuclear reactors.

Scaremongering and illogical arguments about nuclear waste have been used to make a case against nuclear power. Nuclear waste this, nuclear waste that. Let’s look at a real-world scenario. The following picture shows what 20 years’ worth of spent nuclear looks like safely stored at the former Maine Yankee nuclear plant.

The energy produced from this fuel helped avoid 70 million metric tons of CO₂ emissions. There is not much to say after that, is there?

However, there is always a catch. We need politicians to greenlight a whole new sector. They need an impetus, and we know what that is. Silicon Valley and its lobbyists walk in, pleading their case for nuclear power to fuel the next big thing: artificial intelligence (AI). We all read the news, AI has caught everybody’s attention.

AI’s Thirst for Electricity

The power needs for corporate data centers and cloud computing pale in comparison to those for AI hyperscalers, and AI data centers. Let me illustrate with an example.

Yes, the requirements for power to fuel the AI demand are beyond insane. However, just getting the power generation capacity online is not the end all and be all of it. The grid has to be upgraded to the substation level to handle the surge in demand. The only solution left with the Googles, Microsofts, and Amazons of the world is to go for localized Small Modular Reactors (SMR).

SMR Gold Rush

Two weeks ago Google and Amazon announced agreements with companies developing SMRs. On October 14, Google announced that it would purchase energy from SMRs to be built by Kairos Power, which aims to have reactors starting up sometime in the 2030s. Amazon was not far behind. On October 16, Amazon announced an investment in X-energy and agreements with power utility companies in Virginia and Washington State to establish SMRs.

However, SMR technology has yet to be proven. The previous attempt by NuScale (NYSE: SMR) to set up an SMR project in Idaho was canceled in 2023 after massive cost overruns.

Microsoft is not far behind. However, it is taking a more conservative approach. It has entered into an agreement to restart the shuttered Three Mile Island nuclear plant and has entered into a two-decade agreement with Constellation Energy (NASDAQ: CEG) for nuclear power.

Investment Opportunities

Currently, the market is buying the whole nuclear basket. Uranium providers, reactor developers, and nuclear power utilities. As with any hype, people tend to get way ahead of themselves.

A conventional nuclear plant takes approximately three decades to build, and SMRs are not coming online till the early to mid-2030s. Till they come online, what are people going to do with all the Uranium? It will be business as usual. Hence, expect reality to catch up and uranium prices to crater. Also, Cameco (NYSE: CCJ), a favorite uranium supplier, will underperform.

Reactor makers are the place to be. What are we doing now? Building reactors right? That is where the investments are going. That would benefit Oklo Inc. (NYSE: OKLO) and NuSale Power (NASDAQ: SMR). However, if you don’t have the stomach for volatility, these are not for you.

The safest way to play this theme is via power utilities. Staid and boring businesses but with some potential. NextEra Energy (NEE) tops that list. NEE even has a decent wind and solar portfolio.