Finance
Here are 1 under-the-radar data center stocks to buy instead
One of the biggest themes fueling the capital markets right now is artificial intelligence (AI). What investors may not realize, however, is that there are many components of AI – some of which remain quietly in the background.
One of the biggest stories emerging from the AI revolution is data centers. While megacap tech giants like Nvidia have benefited enormously from the rising demand for data center services, smart investors understand that there are plenty of opportunities.
Nuclear power companies in particular could be worth a look as data centers continue to witness outsized growth.
Let’s explore how nuclear power plays a role in data center development, and why I understand it Constellation Energy (NASDAQ: CEG) as a lucrative opportunity right now.
How can nuclear energy play a role in data centers?
Data centers are facilities that house IT infrastructure, such as server racks that essentially act as storage clusters for semiconductor chips. These chips are constant process a lot of information and tend to experience abnormal heat levels.
The combination of constant data processing and thermodynamics ensures that data centers consume a lot of energy.
According to the Department of Energy, data centers are currently responsible for 2% of total electricity consumption in the US.
Although it is still early days, some companies are beginning to seriously consider nuclear power as an alternative to solar and wind energy to help scale data center energy infrastructure. Nuclear energy is considered more reliable against power outages compared to other forms of energy.
Furthermore, nuclear energy is also a form of clean energy, making it even more attractive to companies committed to sustainability.
Some interesting conversations at Constellation Energy?
In April, Constellation Energy CEO Joe Dominguez briefly spoke with Bloomberg about the company’s growth trajectory and how AI is playing a big role. When asked which major technology companies Constellation is currently talking to about its nuclear power capabilities, Dominguez said: “all of them.”
While that’s encouraging to hear, it’s perhaps not that surprising.
Last year, Constellation struck a deal with “Magnificent Seven” member and AI darling Microsoft. Under the terms of the deal, Microsoft will use Constellation’s services in one of its data centers in Virginia.
What does the long term mean?
Outside of Microsoft’s deal with Constellation, Amazon purchased a nuclear-powered data center from Talen Energy earlier this year.
I see these moves by the big tech companies as a good benchmark for what’s to come, and I’m optimistic about the future of nuclear energy consumption.
As data is increasingly used by companies of all sizes to make more informed and efficient decisions, I don’t see investment in breakthrough technologies like AI slowing down any time soon. For that reason, I think investors should keep a close eye on the opportunities bordering on AI, especially in the energy sector, as they could prove lucrative in the long run.
Currently, Constellation Energy is trading at a price-to-earnings (P/E) ratio of just 23.2. In contrast, the price-earnings ratio for the S&P500 is considerably higher at 27.5.
I think investors underestimate the potential impact of nuclear energy on the AI landscape. Given Constellation’s discount to the broader market, coupled with some early signs of demand from the world’s largest AI players, I think the stock looks like a great buy for long-term investors right now.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Amazon, Constellation Energy, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Forget Nvidia: Here’s 1 under-the-radar data center stock to buy instead was originally published by The Motley Fool
