Analysts revamp stock price targets for Microsoft’s AI-power supplier

AI needs more than just graphics-processing units: It needs power. A ChatGPT query can consume nearly 10 times more electricity than a Google search.

While U.S. power demand has remained relatively flat someday of the last decade, that trend is determined to shift. In step with a Goldman Sachs report in May, overall power demand in data centers is projected to surge by one hundred sixty% by 2030.

Microsoft needs that giant amount of energy, fed now not just by wind, solar and fossil fuels. It has agreed to buy nuclear power from Constellation Energy (CEG) for twenty years, the primary time Microsoft has secured a dedicated, 100% nuclear facility for its operations.

The deal used to be Constellation’s biggest ever. Constellation is now reopening its Unit 1 reactor at Three Mile Island, which closed on account of a lack of commercial competitiveness in 2019. Or not it's expected to move back into service in 2028, consistent with an announcement on Sept. 20.

Nuclear power is taken into account clean because it generates electricity without producing carbon emissions, unlike fossil fuels like coal, oil and natural gas. Microsoft's shift indicates a growing interest in nuclear energy as a carbon-free approach to toughen AI infrastructure.

“Policymakers and the market have received an unlimited wakeup call,” Constellation Chief Executive Joe Dominguez said in a Bloomberg interview. “There’s no version of the future of this usa that doesn’t depend upon these nuclear assets.”

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Robert Coward, a former president of the American Nuclear Society, said he “would expect additional similar agreements in the arrival months and years,” consistent with The Washington Post.

Constellation stock surged more than 22% following the announcement on Sept. 20.

How big is Constellation’s potential?

Constellation Energy is a massive U.S. energy company that supplies electricity, natural gas, and renewable energy. It operates nuclear-, wind- and solar-power vegetation.

The company’s most modern financial report, in August, showed earnings per share of $1.Sixty eight for the quarter ended June 30, missing the consensus estimate of $1.seventy two. Revenue of $5.Forty eight billion fell wanting analysts' consensus forecast of $5.Fifty five billion.

Constellation raised its adjusted-EPS outlook for fiscal 2024 to between $7.60 and $8.40 a share, up from its previous guidance of $7.23 to $8.03. The consensus estimate stands at $7.81.

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Barclays in August initiated coverage of Constellation after the earnings report with an overweight rating and a $211 price target. It cited upside to consensus earnings estimates with a "bullish catalyst path ahead," thefly.com reported.

The restart plan, which may perhaps cost about $1.6 billion, faces strict regulatory challenges, including safety inspections from the Nuclear Regulatory Commission, which has never reopened a plant, The Washington Post reported.

But should it proceed successfully, the Three Mile Island web content would supply Microsoft with enough energy to power 800,000 homes.

“This plant never should have been allowed to shut down. ... It'll produce as an effective deal clean energy as the full renewables [wind and solar] built in Pennsylvania over the last 30 years,” Dominguez said.

Microsoft’s capital expenditures are now dominated by investments in cloud infrastructure and AI. In the company’s July earnings call, it announced plans to further ramp up AI spending to meet surging demand.

Analyst lifts Constellation stock price target

Not lower than five analysts upgraded their price targets on Constellation stock following the contend with Microsoft.

Wells Fargo raised Constellation Energy’s price target to $300 from $250 and affirmed an overweight rating.

The firm notes that the flexibility purchase agreement with Microsoft indicates strong interest from tech giants to secure clean power. Wells Fargo sees it as a value-additive transaction but now not without risk, consistent with thefly.com.

Morgan Stanley raised its CEG price target to $313 from $233 with an overweight rating.

The analyst said Microsoft paid "a top class price" in the deal, which shows the value of nuclear power for cloud service providers and suggests that future deals may come at higher prices.

Morgan Stanley is likewise offering positive outlooks for Vistra (VST) and PSE&G (PEG) , raising the stock price targets to $132 from $100 and ten and to $Ninety five from $eighty three, respectively, both with overweight ratings.

Jefferies raised Constellation Energy's price target to $256 from $183 and maintained a hold rating.

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The flexibility purchase agreement has "very positive sector ramifications," supporting the knowledge center thesis and expanding opportunities for nuclear energy, consistent with the analyst.

Jefferies also advises investors to "remember specific attributes that make the deal uniquely attractive."

Constellation Energy traded at $253.forty nine on Sept. 24.

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