Constellation Energy - Enormous Hunger for Energy due to Data Centers
Constellation Energy (CEG) is a leading energy generation and distribution company in the United States. Its business model includes the generation, distribution and marketing of electricity and natural gas, as well as the provision of energy management solutions.
The company sees significant opportunities in the data center sector, which is critical to U.S. national security and economic competitiveness. Constellation is actively working with data centers to meet their energy needs. A key aspect of the growth strategy is the colocation of data centers near large, clean energy sources such as nuclear power plants. This is both a cost-effective and fast method of meeting the high power requirements of data centers. Colocation offers benefits such as lower infrastructure costs and faster implementation as it avoids expensive network infrastructure and system upgrades. The company raised its full-year 2024 guidance in August to a range of $7.60-8.40 per share. Constellation bought back $500 million worth of shares in Q2, bringing its total share buybacks to date to $1 billion.
Microsoft has now announced an agreement with Constellation Energy to use energy from the decommissioned Three Mile Island nuclear power plant in Pennsylvania. The plant, which was originally closed for economic reasons, will now be put back into operation, providing Microsoft with a reliable source of low-carbon energy for the next two decades. This initiative is critical for Microsoft as the expansion of its data centers to support AI software and cloud computing requires an enormous amount of electricity. Unit 1, which is independent of the other units, is expected to be recommissioned by 2028. A study predicts the project will generate 800 megawatts of electricity, create 3,400 jobs and add $16 billion to the state's economy.
Constellation Energy (ISIN US21037T1097): While the stock is not cheap with a forward P/E 2024 ratio of over 27, momentum should remain high following the news. We expect several more of these announcements in the future.
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