The nuclear power sector, which saw a significant surge in 2024, is now facing a more cautious outlook from hedge fund managers. After a year of impressive stock rallies, many investors are scaling back their bets on nuclear energy developers and utilities, citing concerns over overvaluation and the sustainability of the sector’s growth.
A Record-Breaking Rally
The surge in nuclear-related stocks this year, largely driven by the increasing demand for energy from artificial intelligence and the growing adoption of Big Tech, has caught the attention of investors. Companies such as Constellation Energy Corp., which revived its Three Mile Island nuclear plant, and NuScale Power Corp., whose stock skyrocketed by over 800% before peaking in late November, benefited from this enthusiasm.
The increasing focus on low-carbon energy has led to a broader embrace of nuclear power, especially as governments and investors look for ways to meet their green energy targets. Nuclear energy is now being seen by many as a critical part of the global energy transition, helping to address the growing need for stable, large-scale energy sources.
Hedge Funds Shift Focus Amid Concerns of Overvaluation
Despite the sector’s promising outlook, several hedge funds are expressing concerns about the overvaluation of nuclear stocks. Guy Keller, portfolio manager at Tribeca Investment Partners, which oversees a long/short Nuclear Energy Opportunities Strategy, remarked that while the nuclear rally has been impressive, it is prudent to reduce risk due to the rapid price increases. Keller emphasized, however, that shorting the sector would be too risky given how one positive data announcement could send stock prices soaring.
The main concern for hedge fund managers is that nuclear stocks have been caught up in a “NucleHype”—a term coined by JPMorgan Chase analysts to describe the speculative excitement around the sector. While nuclear energy has clear long-term potential, analysts have raised concerns about the sector’s significant challenges, including uranium supply chain issues and the long development timelines for nuclear power plants.
Smaller Developers Face Scrutiny
One of the most volatile areas of the nuclear space is the market for small modular reactors (SMRs), such as those developed by companies like Oklo Inc. and NuScale Power. These next-generation reactors are designed to be faster and cheaper to build than traditional large-scale nuclear plants, but the technology is still in development, with commercial projects expected to debut in the 2030s.
Despite the potential for SMRs, Lisa Audet, founder of Tall Trees Capital Management, has expressed caution about small modular reactor developers, even as their stock prices have come down from earlier highs. As of now, short interest for SMR companies like Oklo and NuScale remains significant, indicating a lack of confidence among some investors.
A Focus on Uranium
While some hedge funds are pulling back on nuclear tech stocks, they are increasing their exposure to uranium, which is essential for fueling nuclear reactors. Arthur Hyde, portfolio manager at Segra Capital Management, which manages $600 million primarily in the nuclear and uranium space, believes that the uranium supply chain will experience positive price pressure in 2025. He pointed out that some uranium mining companies are currently oversold, which could present buying opportunities.
However, even with favorable uranium market conditions, Hyde noted that nuclear technology valuations are still high, and the sector will need substantial good news to maintain its current price levels.
Looking Ahead: Nuclear Under the Trump Administration
Both Segra Capital and Tribeca Investment Partners are optimistic about the future of the nuclear sector, especially with the potential support of the incoming Donald Trump administration, which is expected to adopt a pro-nuclear stance. Keller believes that the political environment will favor nuclear energy, potentially leading to increased investments from both the public and private sectors.
Overall, while the nuclear energy sector has experienced a dramatic rally, hedge funds are taking a more cautious approach as they assess the long-term sustainability of the growth and the risks associated with inflated valuations. Investors are now refocusing on uranium assets, with the hope that Big Tech’s increasing involvement in the energy sector will create new opportunities for growth in the coming years.
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