Commercial projects: The Civaux nuclear power plant near a residential area in Civaux, central France. Investing in nuclear power emerged as one of the hottest energy themes of the year and many see it as a necessary part of the low-carbon energy transition. — AFP
SYDNEY: Some hedge fund managers are sounding the alarm on overvalued nuclear power stocks and scaling back exposure after a stunning rally this year.
Sydney-based Tribeca Investment Partners and Segra Capital Management in Palm Beach, Florida, are among funds that have recently trimmed bets on nuclear technology developers and utilities.
“The concern I have is some of this stuff has rallied hard,” said Guy Keller, a portfolio manager at Tribeca who oversees its long/short Nuclear Energy Opportunities Strategy.
As a result, it makes sense to “bring my risk down”.
“Still, I would never build a short position because you’re one data-centre announcement away from blowing yourself up,” Keller said in an interview.
Investing in nuclear power emerged as one of the hottest energy themes of the year.
The rise of artificial intelligence and the huge data centres required to power it mean the future of nuclear is now firmly tied to the seemingly unstoppable rise of Big Tech.
At the same time, more green-oriented investors have started to embrace nuclear as a necessary part of the low-carbon energy transition.
Stocks swept up in the wave of enthusiasm include Constellation Energy Corp, which has almost doubled this year amid the revival of its shuttered Three Mile Island nuclear plant, and NuScale Power Corp, whose shares soared more than 800% until hitting a peak in late November.
Lisa Audet, founder and chief investment officer of Greenwich, Connecticut-based Tall Trees Capital Management, said she remains “cautious” on small modular reactor developers like Oklo Inc and NuScale, even after watching the share prices come down.
Short interest as a percentage of shares outstanding currently stands at about 17% for Oklo and almost 15% for NuScale, according to IHS Markit data.
This compared with less than 1% for Constellation Energy.
Small modular reactors are intended to be faster and cheaper to bring into service than large-scale plants, though the technology remains in development, and the first commercial projects aren’t likely until the 2030s, according to the International Energy Agency.
The rest of Wall Street is also turning more wary.
A team of JPMorgan Chase & Co analysts published a 63-page report in October warning of the risk of hype surrounding nuclear stocks, even coining a specific term for the moment: “NucleHype”.
Led by Jean-Xavier Hecker, head of environmental, social and governance, and sustainability for EMEA equity research, the report highlighted “inherent challenges” in the sector, including uranium supply-chain constraints and the amount of time it takes to develop nuclear power.
Some hedge fund managers are seeing opportunities in other parts of the value chain.
A “fragile and fragmented” supply chain for uranium “should lead to positive price pressures for the commodity in 2025,” said Arthur Hyde, a portfolio manager at Segra Capital, which manages US$600mil of assets mainly in the nuclear and uranium space.
Uranium prices have fallen about a third from their February peak, paring gains for the producers and project developers in the US$3.4bil Global X Uranium ETF to 1.4% this year from almost 38% in 2023.
Some mining companies are now oversold, Hyde said.
However, nuclear-tech valuations are still “relatively lofty” and “you’re going to need a lot of good news to support those valuations into the new year”, he said.
That led Segra Capital to scale back its holdings of US utilities and technology companies in the fourth quarter and add to its exposure of producers and developers in the United States, Canada and Australia.
Tribeca’s Keller said most of his fund is tilted towards uranium assets, based partly on a bet that Big Tech will eventually expand its investments into the supply chains needed to power nuclear plants.
“It’s not going to be long before they realise that they need to secure the upstream supply as well,” he said.
“And again, it’s just going to take one deal, and then all of the others will pile in.”
Segra Capital and Tribeca, which has more than A$200mil (US$127mil) in the nuclear and uranium sector, are constructive about the incoming Donald Trump administration’s stance on nuclear.
“I’m fairly confident that the Trump administration will be, and is, pro-nuclear,” Keller said. — Bloomberg
