The next AI cusp? Amazon (AMZN.US) and Alphabet (GOOG.US, GOOGL.US) are investing

Since this year, companies that own nuclear reactors have been the biggest beneficiaries of the increase in demand for nuclear energy. These include Constellation Energy (CEG.US) and Vistra Energy (VST.US), whose shares have more than doubled this year.

Now, a number of companies are gradually emerging to design, build, and fuel new reactors. These companies include NuScale Power (SMR.US), Oklo (OKLO.US), BWX Technologies (BWXT.US), and Centrus Energy (LEU.US), and their stock rally may have just begun.

The Zhitong Finance App learned that on Wednesday, Amazon (AMZN.US) announced that it will fund the construction of several small nuclear reactors in Washington State and invest in the nuclear energy startup X-energy. Earlier, Google's parent company Alphabet (GOOG.US, GOOGL.US) also announced on Monday that it had reached an agreement with privately held nuclear reactor developer Kairos Power to support its development and construction of multiple reactors. Although specific financial terms were not disclosed, Kairos plans to launch its first reactor by 2030 and is expected to build more by 2035.

The move by Google and Amazon is part of a trend where tech companies are gradually buying electricity from nuclear power plants to meet the needs of their data centers, which power artificial intelligence applications. Microsoft (MSFT.US) has signed a contract with Constellation Energy to buy electricity from a Three Mile Island reactor, and Amazon has also purchased a data center connected to the Talen Energy nuclear power plant in Pennsylvania.

Although these reactors are not technologically new; for example, the Three Mile Island power plant was shut down due to economic reasons in 2019, and Google's deal would build a brand new reactor. Oracle Chairman Ellison also said the company plans to use multiple small reactors to power its data center.

Michael Underhill, Chief Investment Officer of Capital Innovation, said that Google's announcement was a strong signal. He believes, “This is the next industrial revival. Artificial intelligence cannot be achieved without nuclear energy.” Underhill believes this trend has only just begun.

Kairos is one of the companies developing a new type of small modular nuclear reactor (SMR). These reactors are smaller, faster to build, and more efficient. Each of the 94 existing nuclear reactors usually produces about 1,000 megawatts (1 gigawatt) of electricity, enough to power more than 500,000 homes. The power of the small modular reactor is less than 300 megawatts, and the Kairos designed reactor has a power of 75 megawatts. Google plans to buy up to 500 megawatts of electricity.

These reactors are called “modular” because their components are prefabricated in the factory and transported to the construction site for assembly. They also operate differently; some reactors use uranium that has been treated differently rather than the uranium used in light water reactors that currently dominate the market. Kairos uses ceramic “pebble” fuel and molten salt cooling systems that can operate at lower pressures, which are considered safer and less costly than traditional reactors.

Kairos has obtained permission to build a test reactor in Tennessee, but more licenses are needed to build a commercial reactor for Google. Terrapower, a small modular reactor company founded by Bill Gates, also uses molten salt as an energy storage system in its reactor design, and is currently carrying out reactor related construction work in Wyoming.

Kairos CEO Mike Laufer said that Kairos's reactors operate at higher temperatures and lower pressures, making them safer and more cost-effective than existing technology. “We don't need the big, heavy components that other nuclear technology requires.”

Currently, there are only three small modular reactors in the world, none of which are in the US. However, by the 2030s, dozens of seats may be in use. The US Congress passed a law this year aimed at speeding up approval of new small modular reactors and reducing approval costs.

Although direct investment in this trend is not easy, as companies such as Kairos and Terrapower are still privately held, X-energy is no exception. But some other small modular reactor developers are already on the market. Oklo, for example, is chaired by OpenAI CEO Sam Altman, and the company went public through a SPAC merger earlier this year. Despite the high volatility of the stock, Oklo stock has risen 70% in the last week, driven by optimism in the nuclear energy market. The company is still seeking approval for its nuclear reactor design.

NuScale, another company headquartered in Oregon, is the only small modular reactor developer to receive design approval from the Nuclear Regulatory Commission. However, the company also faced challenges, and its plans to build a reactor in Idaho came to an end due to an inability to sign enough power purchase agreements, causing the stock to plummet. However, due to recent small modular reactor development announcements, NuScale's stock price has quadrupled this year, returning to the level before the end of the Idaho project.

Another way to participate in this trend is by investing in uranium. Important uranium miners include North American market leader Cameco (CCJ.US), and smaller companies NexGen Energy (NXE.US) and Uranium Energy (UEC.US). Investors can also buy shares in the uranium enrichment company Centrus Energy (LEU.US). Uranium must be enriched before it can be used in reactors. Having domestic uranium enrichment capabilities is particularly important because Russia currently dominates the market, and the US Congress passed a law this year prohibiting the continued purchase of Russian uranium. Centrus is already selling a special type of uranium called Highly Abundant Low Enriched Uranium (HALEU), which is the fuel used by many small modular reactor developers.

Small nuclear reactors are becoming a hot new trend in the energy sector. While they are still a long way from powering the grid, once realized, there could be many winners.