Constellation Energy's Bold Move to Fuel AI Data Centers with Nuclear Power

Constellation Powers Up With Reinforced AI Data Center Strategy

Constellation Energy (NASDAQ: CEG) has drawn strong market interest recently, with its stock climbing over 45% in the past month. This surge places it among the top performers in the S&P 500 index. The market reaction reflects Constellation’s clear focus: becoming a key electricity supplier to the energy-intensive artificial intelligence (AI) data center sector. As AI demands more power, investors are paying close attention to energy companies ready to meet this challenge.

Constellation's AI Strategy in Focus

The main catalyst behind Constellation's stock rise was its firm commitment to supplying the growing power needs of the AI industry. This was outlined during the company’s first-quarter 2025 earnings call on May 6th. Management emphasized that major tech companies' demand highlights the critical importance of dependable power, especially nuclear energy, in supporting AI growth. While acknowledging the significant opportunity ahead, they also advised caution against exaggerated market expectations, presenting a measured but substantial growth outlook.

A core component of Constellation's approach is prioritizing on-grid sales over direct "behind-the-meter" (BTM) power arrangements. On-grid sales offer more flexibility and avoid the delays often associated with BTM co-location projects. This strategy allows Constellation to collaborate with multiple utilities across various regional transmission organization (RTO) territories. Nonetheless, BTM setups remain an option for specific large-scale customer needs.

Constellation leverages its existing nuclear fleet as a competitive advantage in serving AI data centers. Nuclear power stands out for its cost-effectiveness, reliability for continuous operation, potential for long-term fixed-price contracts (up to 20 years), rapid deployment through existing infrastructure, and sustainability. These factors position nuclear energy as a preferred solution for data center operators.

Growth initiatives reinforce this strategy. The planned acquisition of Calpine, expected to finalize by the end of 2025, aims to add at least $2 in earnings per share and $2 billion in free cash flow annually. This deal will expand Constellation's generation capacity and provide coast-to-coast coverage. Additionally, organic growth efforts, such as restarting the Crane Clean Energy Center and implementing fleet-wide uprates adding over 1,150 megawatts of new firm capacity, directly support rising energy demand.

Financial Performance and Investor Outlook

Constellation’s first-quarter 2025 results set the stage for these strategic updates. The company reported adjusted (non-GAAP) earnings per share (EPS) of $2.14, slightly below analyst expectations. However, revenue of $6.79 billion surpassed forecasts of $5.44 billion, marking a 10.18% year-over-year increase. The market appeared to value the strong revenue and strategic clarity over the modest EPS miss.

Importantly, Constellation reaffirmed its full-year 2025 adjusted operating EPS guidance between $8.90 and $9.60. Management expressed confidence in meeting these targets, stating, "We are exactly where we want to be through the first quarter, and we will meet our commitments this year."

Several factors support this outlook. The absence of nuclear Production Tax Credits (PTCs) in Q1 2025, due to higher anticipated gross receipts, is expected to be positive over the full year. The PTC program remains a valuable hedge against downside risks. Additionally, the inflation adjustment for the 2025 PTC is estimated between 2.3% and 2.6%, potentially adding around $500 million in revenues to base earnings by 2028.

Management views the current stock price as undervalued compared to projected double-digit earnings growth through the decade's end. With approximately $1 billion left in its share buyback authorization, the company plans to resume repurchases at attractive price levels once restrictions related to material non-public information lift. Although specific guidance for Q2 2025 was not provided, the reaffirmed annual outlook and positive tone suggest ongoing momentum fueled by the AI power strategy.

Sustaining Momentum in AI Energy Supply

Constellation’s stock rally following its earnings release reflects investor endorsement of its clear plan to serve the AI data center market. The first-quarter earnings call outlined a multi-faceted approach, including leveraging its nuclear fleet and pursuing growth through acquisitions and plant restarts. These efforts target the substantial energy demand driven by AI data centers.

Going forward, consistent execution of this strategy and adherence to financial guidance will be key to maintaining investor confidence. Successful delivery could further enhance Constellation’s market value as it supports expanding AI infrastructure needs.