Al Root
Technology giants want to secure clean, uninterrupted nuclear-based electricity to power their power-hungry AI data centers. Their efforts have sent some stocks soaring, while sending out ripples across the technology, utility, and industrial landscape.
Investors searching for a new nuclear-electricity play for the artificial-intelligence industry have a new idea, thanks to BofA.
Analyst Andrew Obin wrote Tuesday that industrial pump and valve maker Flowserve is a hidden nuclear energy play. The company's nuclear exposure is "the most meaningful in our coverage," wrote Obin.
Flowserve makes a lot of pumps, seals, and valves that show up in virtually every industrial operation, including power generation.
The nuclear business is only about 3% to 4% of total sales, says Obin. However, growth in that portion of Flowserve's business isn't embedded in Wall Street estimates or investor expectations. What's more, Obin says the nuclear business is more profitable than the average. Both things add up to better-than-expected earnings in the coming years.
Flowserve stock trades for roughly 16 times estimated 2025 earnings. The S&P 500 trades for almost 21 times.
Obin rates Flowserve shares Buy and has a $60 price target for the stock.
Overall, 64% of analysts covering shares rate them Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Flowserve shares is just under $57 apiece.
Flowserve stock was up 4.4% in early trading Tuesday, while the S&P 500 was down 0.2% and the Dow Jones Industrial Average was flat.
Obin's research report follows Friday's news that Microsoft and Constellation Energy are partnering to restart the Three Mile Island nuclear power plant. In March, Amazon.com and Talen Energy reached an agreement to sell nuclear power to the tech giant.
Through early trading Tuesday, shares of Talen were up about 186% year to date. Constellation Energy shares were up about 117%. Shares of independent power producer Vistra were up almost 200%. Vistra also operates nuclear power stations.
Many other stocks besides power producers have benefited from the AI trend. Shares of data center infrastructure provider Vertiv were up about 99% year to date. Shares of GE Vernova were up more than 100% from levels reached around the time of its Apr. 2 spin from GE Aerospace.
Vernova makes gas-powered turbines. It also sells technology to utilities to manage and improve the electricity grid. GE Vernova also services nuclear power stations.
Of course, there is Nvidia, which makes most of the chips powering AI computers. Shares have gained about 136% year to date.
Flowserve stock has gained a respectable 22% so far in 2024. Still, more gains could lie ahead as investors see higher growth coming from an unexpected source.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
September 24, 2024 12:28 ET (16:28 GMT)
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