At face value, BHP (NYSE:BHP) represents one of the most important enterprises in the world. Sure, the mining firm extracts commodities, which by themselves don’t do much. However, it’s what humans do with these natural products that make all the difference. For example, with much talk about the electrification of mobility, the metals that support this integration will be in hot demand. Nonetheless, one metal that doesn’t quite get talked about with the same positive framing as other commodities is uranium.
That’s not to say that uranium isn’t valuable – it’s incredibly so. However, the political and ideological winds favor the development of renewable energy infrastructure. Uranium, being tied to the controversial nuclear power industry, may be viewed as a necessary evil.
With artificial intelligence and data centers imposing a severe drain on power grids, uranium cannot be ignored. And that’s where BHP’s long-term initiatives to extract relevant resources could come into play. I am bullish on BHP stock.
A Potential Pivot Toward Uranium Could Boost BHP Stock
Last year, Reuters reported that the mining giant will leverage its program to boost high-potential mineral explorers, particularly in fields beyond BHP’s core interest of copper and nickel. Included in its target list were uranium and lithium projects.
Called the Xplor accelerator program, BHP chooses multiple projects around the world to extract commodities that are vital to the broader energy transition. Of course, lithium represents a key asset for the global EV integration. However, it’s really uranium that should capture BHP’s attention and investment dollars over the long run.
That’s not to say that lithium and metals that undergird EV development – such as copper and nickel – should be ignored. However, one of the current issues with the focus on EVs is that the sector has a clear alternative: hybrid vehicles that integrate both electric and combustion-based technologies. Notably, amid the EV fallout, demand for hybrids has soared.
However, uranium and the wider nuclear energy industry really have no equal. According to the Nuclear Energy Institute, “One uranium fuel pellet creates as much energy as one ton of coal, 149 gallons of oil, or 17,000 cubic feet of natural gas.” You just can’t find such energy density anywhere else.
Why is that important? As I recently argued, the shift toward artificial intelligence has a price. Yes, the generative AI chatbots may be free to use. However, all these applications come at the cost of astounding energy consumption.
The International Energy Agency stated that based on forward projections, global energy demand stemming from multiple digital innovations such as data centers, cryptocurrencies, and AI – could account for as much electricity consumption as used right now by Japan.
Unfortunately, there’s just not enough space for wind and solar infrastructures to generate the electricity needed to power these innovations. This circumstance bodes very well for uranium. Thus, the mining giant’s potential investments in the metal could yield long-term gains for BHP stock.
Follow the Money
Another factor that makes BHP stock enticing as a potential uranium investment is the growing importance of AI. Experts consistently highlight the rapid rise of digital intelligence, suggesting significant future growth.
Perhaps most notably, Bloomberg cited data – as I pointed out in a prior TipRanks article – that projected the generative AI ecosystem could command a $1.3 trillion market by 2032. If so, we would be talking about a compound annual growth rate (CAGR) of 42% from 2022 to 2032.
Further, Grand View Research states that just the global generative AI market alone reached a valuation of $13 billion last year. With the space projected to generate sales of $109.37 billion, this forecast implies a CAGR of 36.5%.
The bottom line is this. If you believe in these projections, then BHP stock looks incredibly compelling. A growing AI sector will almost surely translate to a bigger strain on global power grids. Wind and solar scientifically can’t provide the answer. The only solution really is to go nuclear. Again, that’s good for uranium and thus positive for BHP stock, provided the underlying company continues to invest in it.
Time for a Valuation Rethink
When discussing the case of tech juggernaut Nvidia (NASDAQ:NVDA), the bulls use the argument that based on the forward projections of generative AI and the demand for advanced semiconductors that it will yield, NVDA is actually undervalued. Again, provided that BHP continues to support its uranium initiative, you may use the same argument for BHP stock.
Right now, the consensus view for sales only comes in at $55.55 billion, implying a modest 3.2% increase. And sales are projected to dip slightly in Fiscal 2025, explaining the hesitation toward BHP stock. However, if we assume that NVDA will skyrocket thanks to AI, BHP should also benefit.
Frankly, it doesn’t make sense for AI to get a massive bump up, yet demand for energy-related commodities stays flat. If AI soars, energy consumption will soar with it. So, while BHP’s trailing-year sales multiple is a little hot, around 2.6x, it may not be as elevated as it seems.
In my opinion, analysts aren’t truly respecting the potential behind BHP’s uranium investments.
Is BHP Stock a Buy, According to Analysts?
Turning to Wall Street, BHP stock has a Moderate Buy consensus rating based on four Buys, three Holds, and zero Sell ratings. The average BHP stock price target is $57.41, implying 1.1% downside risk.
The Takeaway: BHP Stock May Bring Hidden Value to the Table
Generally speaking, as a metals and mining specialist, BHP is relevant, thanks to delivering the necessary commodities that power modern innovations. However, none might be more valuable than uranium, a metal which it has expressed interest in. Thanks to the astounding energy consumption of various AI protocols, the nuclear power industry may receive a lifeline. And since AI is only expected to expand, energy consumption likewise will see an upward trajectory. That’s a big plus for BHP stock.
