Uranium: Big tech’s energy solution to power up AI

“Energy, not compute, will be the number one bottleneck to AI progress” – Mark Zuckerberg

The power demand required to run a data center has become the next big constraint as to whether AI-exposed equities can continue their spectacular run.

To give a sense of the magnitude of this demand, data center electricity use is expected to more than double by 2030¹, largely driven by technology companies such as Microsoft, Google and Amazon seeking to develop leading edge AI applications.

In fact, data centers are forecast to drive more than a third of the 2.5% p.a. in U.S. power demand growth from 2022-2030, according to Goldman Sachs.

Source: EIA, Goldman Sachs Global Investment Research, Betashares. Actual results may differ materially from forecasts.

On top of the billions of dollars spent on building these data centers, sourcing a reliable, low-cost form of energy has become top of mind for these companies.

Whilst solar and wind are popular renewable energy sources, they are intermittent in nature as they can only produce energy at certain parts throughout the day. This is where nuclear comes in.

Era of Nuclear

AI data centers need reliable power 24/7 and right now, nuclear is one of the lowest carbon-emitting power sources available, with the capacity to meet the projected growth in energy demand.

In response, there have been numerous announcements by U.S. big tech firms signing deals with nuclear energy providers and backing the development of small modular reactor (SMR) technology.

• Microsoft signed a deal with U.S. energy firm Constellation Energy to restart the shuttered Three Mile Island nuclear power plant in Pennsylvania,
• and Google also signed a nuclear clean energy agreement with Kairos Power, a developer of SMRs.
• Amazon bought a nuclear-powered data center from Talen Energy for $650 million, with an ambitious goal of reaching net-zero carbon by 2040

These developments clearly signal a strong level of commitment for nuclear energy by the big tech companies, necessary to build competitive AI applications which increasingly need more data, processing power and hence more energy.

Beyond big tech, the demand outlook remains constructive with new nuclear reactor roll outs in China and India forecast to lead nuclear power generation growth over the next five years. These countries are able to build nuclear reactors in less time and at lower cost than developed countries, like the US and Europe, where nuclear faces higher political resistance and regulatory challenges.

New reactors are an important source of uranium demand as they require a full load of uranium to start, compared to existing reactors which replace about one-third of their fuel load annually².

The supply dynamics of the uranium market should also be supportive for prices.

Whilst new sources of uranium supply are expected over the next few years from companies in Canada, the U.S. and Australia, the supply deficit may persist for several reasons.

Kazatomprom, the largest uranium producer responsible for 40% of global mine supply³, recently lowered its uranium production guidance for 2025 down to 25,000 to 26,500 tons from 30,500 to 31,500 tons amid project delays and a shortage of sulfuric acid required to extract uranium from ore bodies⁴.

Whilst Kazatomprom will likely remain a key contributor to longer-term global supply growth, the company currently faces mine production delays and supply chain challenges which may take several years to abate.

Source: World Nuclear Association

In addition to primary supply from existing and new mines, nuclear fuel supply may also come from secondary supplies (e.g., civil stockpiles, military warheads, and recycling) which have also become depleted.

For example, the ‘megatons to megawatts’ program significantly reduced secondary uranium supply by converting 500 metric tons of highly enriched uranium from Russian nuclear warheads into low enriched uranium (LEU) to fuel U.S. nuclear power plants, generating electricity for over 20 years.

We may also see secondary supply constrained as enrichment plants shift away from underfeeding⁵ – a process that enrichers use to produce the same amount of enriched uranium whilst conserving raw material.

With almost half of the world’s enrichment capacity in Russia and a recent U.S. Senate restriction imposing a long-term ban on Russian enriched uranium imports, the secondary supply deficit may exacerbate from here.

Investment Opportunities in Uranium

The constructive demand/supply environment for nuclear reactors has meant uranium stocks like Cameco, Uranium Energy and Nexgen Energy⁶ have performed well for the 5 year period from October 2019 to October 2024.

Source: Bloomberg, Betashares. As at 25 October 2024. Past performance is not an indicator of future performance.

These uranium miners have been beneficiaries from strong demand as governments look to nuclear power as a means to achieve net zero emission targets. Supplying the growth in energy required for AI infrastructure provides a further tailwind and provides the capital and incentive for the commercialisation of new generation technology such as SMRs.

Betashares Global Uranium ETF (ASX: URNM)

URNM Global Uranium ETF provides exposure to a portfolio of global companies involved in the mining, exploration, development and production of uranium, modern nuclear energy, or companies that hold physical uranium or uranium royalties. Australian investors can buy URNM on the ASX to gain global exposure to the uranium industry in a single trade.

For more information, visit URNM’s fund page here.

If you would like to learn more about the global uranium outlook, please sign up to Betashares webinar here.

Footnotes:

1. Goldman Sachs Investment Research – Generational growth: AI, data centers and the coming US power demand surge. Published April 28, 2024. ↑

2. Bloomberg Intelligence: Uranium Global Industry Outlook 2024 ↑

3. Bloomberg Intelligence: Uranium Global Industry Outlook 2024 ↑

4. https://www.bloomberg.com/news/articles/2024-08-23/world-s-top-uranium-producer-cuts-output-target-for-next-year ↑

5. Bloomberg Intelligence: Uranium Global Industry Outlook 2024 ↑

6. Cameco, Uranium Energy and Nexgen Energy are currently included in URNM’s portfolio. No assurance is given that these companies will remain in URNM’s portfolio or will be profitable investments. ↑