Nuclear power is once again being viewed as a solution to many of the world’s problems. Not only energy and environmental concerns, but also AI compute capacity and national security challenges. As a result, the sector is seeing increased demand, presenting an opportunity for long-term investors.
In the 15 years since the Fukushima disaster, Japan shut down all 54 nuclear reactors that provided 30% of its energy, and Germany shut down its 8 reactors. Italy, Belgium, and Switzerland reaffirmed their bans and phase-out plans, while France, the EU’s largest user of nuclear power, pledged to reduce its reliance on nuclear power. However, energy price spikes stemming from conflicts in multiple oil-producing countries, as well as ever-growing demand from energy-hungry AI data centers, have reaffirmed the importance of low-cost domestic electricity generation. Many countries have now reversed course: the EU included nuclear in its “green” initiatives, France and Germany are now expanding nuclear use, and Japan is restarting some of its reactors. The U.S. has designated uranium a “critical mineral”, committing $2.7 billion to domestic enrichment and launching an $80 billion partnership with Westinghouse to build new nuclear power reactors. As a result, uranium prices and uranium miners have outperformed their respective asset classes materially over the last few years.
The implications for investors are stark. Despite the recent move, this bull market may have longer to run. Uranium supply remains constrained even though demand is rising significantly. The Iran conflict makes things worse as it threatens the sulfur supply, a critical input in uranium processing. Even without conflict, current mining production accounts for only 56% of the world’s reactor requirements. 70% of uranium production is sourced from countries that don’t consume it, and 70% of those who consume it don’t produce it. Uranium has been in a supply deficit since 2018, and, much like other commodities, it takes a very long time for new supply to come online.
In short, nuclear power has a tailwind that will likely persist in the medium term. Still, the sector is prone to booms and busts and has already risen a lot. Despite the recent rise, current prices are ~50% below the 2007 and 1976 peaks after inflation adjustment. And the % increase this time around is even less than that. On the stock side of the equation, the industry has a beta of ~1.3, which means it is 30% more sensitive than the market: if the S&P 500 moves 10%, these stocks might move 13%. The punchline is that portfolios that include nuclear exposure will likely be more volatile than those that don’t. Interested investors will find several ETFs that provide suitable, diversified exposure to address these concerns. But we’d recommend sizing appropriately given the risk, looking for entry points on dips, and, above all, being patient.
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. An investment in the Fund involves risk, including possible loss of principal.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.
