Cameco Corporation (CCJ), a nuclear fuel solutions company, stands to gain as Meta Platforms, Inc. (META) and other big tech giants turn to nuclear power to meet the growing energy demand for AI integration. Cameco primarily operates as a supplier of uranium, a critical chemical component used in the nuclear power generation process. Although Cameco is expensively valued in the market on the back of a 40% increase in its stock price this year, I am bullish on the prospects for the company as I believe the company is well-positioned for stellar growth.
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Tech Giants Are Betting Big on Nuclear Power
My bullish stance for Cameco is centered around the growing demand for nuclear power from major tech companies, which is likely to boost the demand for uranium. With the race to AI supremacy intensifying, big tech companies are aggressively investing in cloud data centers to support the integration of AI into their businesses and to roll out customer-facing AI applications. According to a new study by EPRI, data centers could consume as much as 9% of U.S. electricity generation by 2030, which highlights the substantial power needs of AI technology.
Some of the leading tech giants have already embraced nuclear power. For instance, Amazon.com, Inc. (AMZN) signed agreements to support the construction of a few small modular reactors owned and operated by Energy Northwest. Alphabet Inc. (GOOG) has also partnered with Kairos Power to bring 500 megawatts of small modular reactors by 2035. Microsoft Corporation (MSFT), in a major move, signed a deal to restart the Unit 1 plant in Three Mile Island and purchase all electricity generated from the plant for the next 20 years.
This renewed interest in nuclear power comes as a result of the clean energy commitments by big tech companies. Nuclear power is a carbon-free energy source, and using it to power data centers will help tech giants sustainably pursue a future in the AI field. In addition to this, nuclear power provides stable energy around the clock, unlike other renewable energy sources such as wind and solar power that lack consistency.
Cameco Will Benefit From Strong Demand for Uranium
I believe the growing demand for nuclear power will benefit uranium producers, including Cameco. Uranium fuel is the most widely used fuel source by nuclear plants for nuclear fission as its atoms can be easily split apart. According to data compiled by Global X ETFs, uranium supply is already in a deficit, and this is expected to persist in the foreseeable future. By 2030, the supply deficit is expected to reach a staggering six tons. Uranium prices have surged to almost $80 from around $25 five years ago, and a continued supply deficit is likely to boost prices much higher in the long term, helping Cameco enjoy a meaningful margin expansion.
In addition to favorable pricing trends, Cameco will also benefit from regulatory support. Geopolitical tensions between the U.S. and Russia have forced the U.S. government to take swift actions to support the domestic nuclear power industry. The White House published a Nuclear Energy Deployment Framework last month detailing its action plan to revive the nuclear power industry to achieve net-zero emission goals, which includes guidelines for investing in gigawatt-scale reactors, building small modular reactors, and improving the licensing and permitting process to operate nuclear power plants.
Cameco’s Long-Term Contracts are Encouraging
In addition to the favorable macroeconomic and regulatory outlook, I am encouraged by the long-term nature of Cameco’s contracts with its key customers, which improves the revenue stability of the company. At the end of the third quarter, Cameco reported commitments for approximately 29 million pounds of uranium delivery annually through 2028. Some of the key contracts signed by Cameco include supplying uranium to Ukraine’s Energoatom’s nuclear power plants through 2035 and a deal with China Nuclear International Corporation.
Despite focusing on long-term contracts, the company has strategically opted to keep some of its production capacity available for future contracts to gain exposure to the expected rise in uranium prices, which seems the right decision given uranium pricing trends of late.
Cameco Owns High-Quality Uranium Assets
My bullish stance on Cameco is strengthened by the company’s strategic asset ownership, which positions it to serve the growing demand for uranium in the coming years. Cameco owns and controls some of the largest high-grade uranium reserves in the world, including the Cigar Lake Mine, which is the largest high-grade uranium mine in the world with reserves estimated at 152 million pounds of triuranium octoxide. Cameco also has access to almost 500 million pounds of mineral reserves, and the company has strategically focused on growing its ownership stake in low-cost uranium assets to keep mining and production costs low.
Is Cameco a Buy, According to Wall Street Analysts?
Cameco’s stellar stock market run this year has pushed the stock into fairly valued territory. Based on the ratings of 10 Wall Street analysts, the average Cameco price target is $60.92, which implies the stock is fairly valued in the market.
Cameco is currently valued at a forward P/E of 148 and a forward P/S multiple of 12, which suggests a lot of future growth is already baked into the market price. However, I believe Cameco is still in the early stages of its growth revival amid the renewed interest in nuclear energy. The company reported YoY revenue growth of 18% and 42% in 2022 and 2023, respectively, after suffering from revenue declines since 2014. Analysts project this revenue growth momentum to persist in the next five years. This makes Cameco an attractive play on the resurrection of the American nuclear energy sector.
Key Takeaway
Cameco Corporation is well-positioned to benefit from the strong demand for nuclear energy as the company supplies uranium, a key ingredient used in the nuclear power generation process. With access to high-grade, low-cost uranium mining assets, Cameco is likely to benefit from favorable uranium pricing trends and regulatory support. Despite stretched valuation levels, I find Cameco an attractive bet amid the resurgence of the nuclear power sector.
