The nuclear energy sector may be approaching a tipping point, according to UBS, as growing demand for reliable, low-carbon power and new policy incentives drive renewed interest in the industry.
This potential "nuclear renaissance" could benefit key companies like Rolls-Royce Holdings PLC (LSE:RR.), which has developed its own small modular reactor (SMR), along with firms involved in uranium mining, equipment manufacturing, and engineering.
Tech companies, including Microsoft, are helping drive this shift. As they build more data centres and AI infrastructure, they require steady, low-carbon energy, making nuclear an attractive option.
Microsoft recently signed a power purchase agreement (PPA) with Constellation Energy to repower the Three Mile Island nuclear plant, securing 100% of its output. UBS suggests that this deal could be a model for future investments in nuclear power.
However, the nuclear sector still faces high costs and long construction timelines, which have often led to projects coming in over budget and delayed.
Despite these challenges, UBS believes that incentives under the US Inflation Reduction Act (IRA), which provides tax credits for clean energy, could reduce financial risks and encourage investment in new nuclear projects.
Companies like Rolls-Royce, which is advancing SMR technology, are positioned to benefit from this shift. SMRs are seen as a key part of the future of nuclear energy due to their lower upfront costs and flexibility.
Other companies involved in the nuclear value chain, such as equipment manufacturers and engineering firms, could also see gains as the industry expands.
UBS expects the path forward to begin with repowering decommissioned plants like Crane Energy Center (formerly Three Mile Island), followed by a push towards new nuclear construction, particularly with SMRs.
If the trend continues, the nuclear sector could play a crucial role in meeting the rising demand for reliable, low-carbon energy, driven by tech companies' clean energy commitments and supported by government policies.