2 Energy Stocks Fueling the AI Datacenter Boom

Key Points

• Artificial intelligence (AI) deployment is fueling data center growth along with electricity demand, as data centers will use 8% of all electricity in the U.S. by 2030.
• Constellation Energy has the largest power purchasing agreement with Microsoft over 20 years, which will require restarting the Three Mile Island Unit 1 nuclear reactor by 2028.
• Amazon's AWS unit acquired Talen Energy's 1,200-acre data center co-located with its nuclear plant for $650 million, but the deal is being challenged due to the "free ride" Amazon is getting from bypassing grid transmission fees.

The artificial intelligence (AI) revolution is well underway. There are three essential components to deploy AI: the GPU, like NVIDIA Co. NASDAQ: NVDA chips to crunch the data; storage, like Micron Technology Inc. NASDAQ: MU NAND flash and high-bandwidth memory (HBM) memory chips to store the data, and networking like Ciena Inc. NYSE: CIEN optical transceivers to move the data.

However, there is one absolutely crucial component that overrides all the others: electricity, and lots of it.

AI has been driving the growth of data centers, which require increased electricity to operate, as AI processing can take 200% to 300% more electricity for optimal efficiency. The power and clean energy providers in the utilities sector are the indirect beneficiaries that are helping fuel the AI boom. Here are two energy stocks that are specifically powering AI and data centers.

Constellation Energy

Constellation Energy Co. NASDAQ: CEG make major headlines by announcing the largest power-purchasing deal in history with Microsoft Co. NASDAQ: MSFT.

Constellation will invest $1.6 billion of its own money to reactivate the 835 megawatt (MW) nuclear reactor Unit 1 on Three Mile Island, which is expected to return to service in 2028. Constellation will also try to extend the license renewal for at least another 30 years.

Reviving Three Mile Island Unit 1 as Crane Clean Energy Center

The controversial Three Mile Island nuclear project was shut down in 1979 after a partial meltdown of Unit 2. This sparked a worldwide backlash against the dangers of nuclear reactors. However, Constellation states it was one of the safest and most reliable nuclear plants on the grid before being prematurely shut down. It will be renamed the Crane Clean Energy Center once it restarted.

This is assuming it gets all the permits and regulatory approval from the Nuclear Regulatory Commission (NRC). Chances are high for the approval, considering Unit 1 was still operating until 2019, when Constellation voluntarily curtailed the reactor due to profitability concerns. The NRC is expected to decide on its fate on July 31, 2025. The deal would create over 3,400 jobs, generating at least $3 billion in taxes for Pennsylvania.

Constellation Energy is the largest owner and operator of power plants in the United States, generating energy from a number of renewable sources, including wind, hydro, and solar, along with nuclear and coal. They are the nation's largest owner and operator of nuclear plants, supplying energy to residential, commercial and industrial customers.

Spotlighting the Enormous Energy Needs of Data Centers

In addition to being the largest power purchasing agreement in history, the deal also spotlights the growing power needs of data centers to power AI projects. Microsoft will be using nuclear-generated electricity to power its 635 MW data center. The news sent shockwaves, triggering a buying frenzy among uranium producers like Cameco Co. NYSE: CCJ, which provides the yellowcake to fuel the reactors.

AI Is Driving Worldwide Data Center Power Demand

According to a Goldman Sachs report, data centers will consume 8% of all electricity produced by 2030, with AI driving a 160% increase in power demand. A ChatGPT query consumes 10x more electricity than an Alphabet Inc. NASDAQ: GOOGL Google search. U.S. utility companies will need to invest $50 billion in new generation capacity alone to accommodate the needs of data centers.

Europe is in the worst shape, with the oldest regional power grids on the planet, averaging 50 years old. Goldman Sachs predicts Europe will need over $1 trillion to prep its power grid to accommodate AI deployment, which will drive 40% to 50% more electricity demand.

Talen Energy

Talen Energy Co. OTCMKTS: TLNE is a Texas-based independent power producer that owns and operates power plants. The company also operates nuclear, coal, and natural gas power plants and solar and wind farms. Talen emerged from Chapter 11 bankruptcy in 2023.

In March 2024, Talen sold its 1,200-acre Cumulus Data Assets data center to AWS of Amazon.com Inc. NASDAQ: AMZN for $650 million. Talen will sell electricity to the data center campus in 120-MW increments up to 960 MW with a one-time option to cap commitment at 480 MW, up from 300 MW.

Don’t Let the Name Fool You

Talen Energy’s flagship asset is the Susquehanna Steam Electric Station in Salem Township, Pennsylvania. It is the sixth-largest nuclear plant in the country. It produces 63 million kilowatts daily between two nuclear reactors that have been online since 1983 with licenses to operate through 2042.

The word "steam electric" in its name sounds less ominous than "nuclear," but it is a nuclear power plant using nuclear fission to heat the water to make the steam that spins the turbines to generate the electricity. The steam is cooled and condenses back to water, which is recycled and pumped back into the reactor to heat again. This closed-loop cycle repeats itself indefinitely, generating 2.5 gigawatts or 2,500 MW of carbon-free clean energy.

Co-Location Controversy: Amazon Under Scrutiny for Bypassing Fees  

Amazon’s newly acquired data center also happens to be co-located adjacent to the Susquehanna Steam Electric Station. In addition to buying the data center, Amazon also struck a deal to buy an additional 180 MW directly from the nuclear plant. This bypasses the electrical grid and the accompanying $140 million in transmission fees, which are used to maintain the power grid.

It has irked enough third parties that the deal is under regulatory scrutiny. Exelon Co. NASDAQ: EXC and American Electric Power Co. NASDAQ: AEP challenged the Amazon-Talon deal with the Federal Energy Regulatory Commission (FERC), stating that Amazon is getting a free ride bypassing the transmission fees, which would mean their customers would undertake the burden of the $140 million in costs. They claim Amazon would still be using and benefitting from the transmission system and should pay its share.

Talen Energy argues the major utilities are just trying to squash their deal and urged regulators to reject the challenge. FERC’s decision will likely set a precedent as co-location proposals have started to rise in states including Ohio, New Jersey and Texas.