4. Constellation Energy Corp. (NASDAQ:CEG)
Number of Hedge Fund Holders: 78
Year-to-Date Performance as of February 17: 41.84%
Constellation Energy Corp. (NASDAQ:CEG) generates and sells electricity in the US. Operating across five regions, it provides natural gas, energy-related products, and sustainable solutions. With ~33,094 megawatts of generating capacity from nuclear, wind, solar, natural gas, and hydroelectric sources, it serves diverse customers, which include utilities, municipalities, and businesses.
The company’s nuclear production Q3 nuclear production exceeded 41 million megawatt-hours of carbon-free electricity at a 95% capacity factor in Q3 2024, with exceptionally efficient refueling outages averaging under 18 days. It has the potential for at least 1,000 more megawatts via uprates and is seeing surging demand from data centers and large customers for its 24/7 clean power. This leads to the active pursuit of colocation and grid sales with long-term fixed-price contracts.
Constellation Energy Corp.’s (NASDAQ:CEG) planned acquisition of Calpine for $16.4 billion has boosted investor confidence. This will make it the largest independent power provider in the US and increase its natural gas-fired electricity generation capacity. The Calpine acquisition is a strategic move to capitalize on the growing electricity demand driven by AI and data centers.
As January ended, BofA lowered the company’s price target to $366 from $380 while maintaining a Buy rating. The stock declined due to market overreaction to DeepSeek’s more efficient AI models. BofA believes data center demand will remain strong near term, though potentially less so long-term, and efficiency gains may come sooner than expected.
Alger Mid Cap Focus Fund is bullish on Constellation Energy Corp. (NASDAQ:CEG) due to its leadership in clean energy. This is because the company benefits from increasing electrification and AI demand, and positive developments like rising electricity prices and the Microsoft agreement. Here’s what the fund said in its Q3 2024 investor letter:
“Constellation Energy Corporation (NASDAQ:CEG) is the largest producer of clean energy in the U.S., with 32,400 Megawatts of capacity, 87% of which is nuclear generated. Its nuclear, hydro, wind, and solar facilities provide 10% of all clean energy on the U.S. grid and 22% of its clean baseload power. We believe the company stands to benefit from the increasing electrification of the U.S. economy. The rise of electric vehicles, data centers, and reshoring of American manufacturing is driving U.S. electricity load growth for the first time in nearly two decades. In our view, AI workloads are projected to significantly increase energy demand from data centers over the next few years. As American enterprises seek clean and reliable energy sources, nuclear power, which is carbon-free and dependable, stands out compared to intermittent renewables like wind and solar. Constellation, as an unregulated independent power producer, benefits from low fixed costs and can capture upside from rising electricity prices. We believe that potential opportunities for earnings growth include colocation (data centers near nuclear plants) and energy-matching programs with cloud providers willing to pay premium prices for nuclear energy. The Inflation Reduction Act also provides downside protection through a guaranteed minimum price for nuclear generation. During the quarter, shares contributed to performance from two events: 1) annual electricity auctions revealed tightening markets driven by increasing demand, driving higher pricing in the Middle Atlantic states, leading management to raise their fiscal 2024 earnings projections. 2) On September 20, 2024, Constellation Energy announced the signing of a 20-year power purchase agreement with Microsoft, which includes restarting Three Mile Island’s Unit 1 to supply energy.”
