(Bloomberg) — Some hedge fund managers are sounding the alarm on overvalued nuclear power stocks and reducing their exposure after a stunning rally this year.
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Sydney-based Tribeca Investment Partners and Segra Capital Management in Palm Beach, Florida, are among funds that have recently reduced their bets on nuclear technology developers and utilities.
“What worries me is that some of these things have rallied sharply,” said Guy Keller, a portfolio manager at Tribeca who oversees the firm’s long-short nuclear energy opportunity strategy. As a result, it makes sense to “reduce my risk,” he said.
Still, “I would never create a short position ’cause you’re one data center announcement away from blowing you up,” Keller said in an interview.
Investing in nuclear power has become one of the hottest energy themes of the year. The rise of artificial intelligence and the enormous data centers required to operate it mean that the future of nuclear power is now firmly linked to the seemingly unstoppable rise of big tech. At the same time, more environmentally oriented investors have begun to view 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 nearly doubled this year amid the revival of its shuttered Three Mile Island nuclear power plant, and NuScale Power Corp., whose shares have climbed more by 800% until reaching a peak in 2017. at the end of November.
Lisa Audet, founder and chief investment officer of Greenwich, Conn.-based Tall Trees Capital Management, said she remains “cautious” about small modular reactor developers like Oklo Inc. and NuScale, even after having seen stock prices fall.
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, compared to less than 1% for Constellation Energy.
Small modular reactors are expected to be faster and cheaper to commission than large-scale plants, although the technology remains in development and the first commercial projects are not likely until the 2030s, according to the International Agency energy.
The rest of Wall Street is also more wary. A team of analysts at JPMorgan Chase & Co. released a 63-page report in October warning of the risk of hype around nuclear stocks, even coining a specific term for the moment: “NucleHype.”
Led by Jean-Xavier Hecker, head of ESG and sustainability for EMEA equity research, the report highlighted “inherent challenges” in the sector, including uranium supply chain constraints and the time required for the development of nuclear energy. And this, even as analysts predict that “more countries and financial actors will publicly support nuclear energy”.
More than a dozen financial institutions unveiled an agreement in September supporting a goal to triple nuclear power capacity by 2050. Signatories include Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and Bank of America Corp.
Some hedge fund managers see opportunities in other parts of the value chain.
A “fragile and fragmented” supply chain for uranium “is expected to lead to positive price pressures for this commodity in 2025,” said Arthur Hyde, portfolio manager at Segra Capital, which manages $600 million of assets mainly in the nuclear and uranium fields.
Uranium prices fell by about a third from their February peak, paring gains in the Global X Uranium ETF’s basket of producers and project developers from $3.4 billion to $1. 4% this year, compared to almost 38% in 2023.
Some mining companies are now oversold, Hyde said. However, nuclear technology valuations remain “relatively high” and “you’re going to need a lot of good news to support those valuations in the new year,” he said.
That led Segra Capital to reduce its stakes in U.S. utilities and technology companies in the fourth quarter and increase its exposure to uranium producers and mine developers in the United States, Canada and Australia.
Tribeca’s Keller said most of his fund is tilted toward uranium assets, based in part on a bet that big tech will eventually expand its investments in the supply chains needed to power the plants. nuclear.
“It won’t be long before they realize they also need to secure supply up front,” he said. “And again, it will only take one deal and then all the others will pile up.”
Segra Capital and Tribeca, which has more than A$200 million ($127 million) in the nuclear and uranium sector, are constructive on President-elect Donald Trump’s stance on nuclear power.
“I’m pretty confident that the Trump administration will be — and is — pro-nuclear,” Keller said, adding that he increased his fund’s exposure to U.S. project developers on the assumption that the new president could grant preferential treatment to domestic companies.
–With help from Will Wade and John Cheng.
(He adds in the 13th paragraph that a group of financial companies have supported the goal of tripling nuclear power by 2050.)
