Nuclear power is all the rage right now, with two U.S. reactor reopenings making splashy headlines. The U.S. government has already agreed to back one of the reopenings and it could end up providing a helping hand with the second as well. With Uncle Sam on board, there's a very real chance that nuclear power is ready to take off. Should you buy industry supplier Cameco(NYSE: CCJ) to play the potential upside?
What does Cameco do?
Cameco is a uranium miner and nuclear fuel producer. It is, basically, a picks-and-shovels play on the nuclear power sector. Without the uranium it produces, nuclear power plants can't run. And while it isn't the only uranium miner in the world, it is large and has operations in politically and economically stable regions (largely Canada). That makes it a more reliable supplier than some of the other choices nuclear power companies have to consider.
Image source: Getty Images.
From this perspective, anything that's good for the nuclear power industry is probably going to be good for Cameco. The reopening of two shuttered nuclear power plants is just one piece of the renaissance that appears to be taking place for nuclear power. Earlier in 2024, Southern Company completed the connection of two brand new nuclear power plants to the grid. And there are a number of companies working on small modular reactor designs, including publicly traded NuScale Power, that hope to make nuclear power safer, cheaper, and easier to deploy.
There are other important backers to note as well. For example, one of the two plants being reopened is owned by Constellation Energy. It plans to sell all of the power from the plant, the full 835 megawatts, to Microsoft. Microsoft is expected to use the always-on carbon-free power from the plant to support its data center expansion plans. Simply put, there are a lot of very important entities that appear to want nuclear power to succeed.
Cameco's fortunes will wax and wane with uranium
If there is a nuclear renaissance, Cameco could end up being a huge beneficiary. That will be true if demand increases for uranium and doubly true if the increased demand leads to a large rise in the price of uranium. Selling more uranium at higher prices will do wonders for the company's top and bottom lines. As a miner, Cameco is basically leveraged to the price of the nuclear fuel. So it could easily help investors become millionaires.
But there's a downside to consider here. Uranium is still a commodity. Commodities tend to be quite volatile and uranium has a somewhat checkered past on that front. In fact, Uranium remains below the peak prices reached in the naughts around two decades ago. And don't forget what happened to the nuclear power industry after the Fukushima meltdown in Japan in 2011.
Not only did the price of uranium plunge, but countries around the world reconsidered their commitment to nuclear power. Germany decided it wanted out of the industry altogether! Cameco lost over two-thirds of its value in the five years following the Fukushima meltdown. Although the nuclear power industry has worked hard, and continues to work hard, to ensure that meltdowns don't occur, accidents can still happen. Another meltdown could materially alter Cameco's fortunes.
Cameco isn't for the faint of heart
At the end of the day, Cameco could help you build a seven-figure nest egg. But it is a leveraged bet on the price of uranium and a resurgence of the nuclear power industry. If something derails either of those things then Cameco would likely suffer financially and the stock would probably fall, perhaps dramatically. That's not the type of bet a conservative investor will probably want to make. You need to believe strongly that nuclear power's moment has finally, and permanently, arrived if you are going to buy Cameco.
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Reuben Gregg Brewer has positions in Southern Company. The Motley Fool has positions in and recommends Constellation Energy and Microsoft. The Motley Fool recommends Cameco and NuScale Power and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
