Nuclear-Energy ETFs Surge as Uranium Prices Remain Rangebound: Is Now a Good Time to Invest?
This week’s ETF Wrap highlights the significant surge in uranium and nuclear-energy ETFs, as major technology firms embrace nuclear power to meet the rising electricity demand from data centers supporting artificial intelligence (AI) applications. The sector’s booming popularity has led to impressive growth in both the VanEck Uranium and Nuclear ETF (NLR) and the Global X Uranium ETF (URA).
Uranium and Nuclear-Energy ETFs Experience Significant Growth
Throughout October, nuclear-energy ETFs have seen impressive gains. The VanEck Uranium and Nuclear ETF has surged by 13.2%, marking its best performance since April 2009, while the Global X Uranium ETF is up by 14.5%, set to achieve its best month in over a year, according to FactSet data. This uptick is largely attributed to major tech players, such as Amazon, Alphabet (Google), and Microsoft, making notable investments in nuclear power to support AI-driven data center energy demands.
Major Tech Companies Invest in Nuclear Energy
Amazon recently signed a contract with Dominion Energy to develop a small modular nuclear reactor. Just days prior, Google announced a similar initiative, purchasing nuclear energy from Kairos Power. Moreover, Microsoft struck a 20-year power-purchase agreement with Constellation Energy Corp. to repurpose a decommissioned reactor at the Three Mile Island nuclear facility in Pennsylvania.
After taking a backseat post the Fukushima disaster in 2011, nuclear power has emerged as a cleaner and more efficient energy source—benefiting from a higher capacity ratio compared to intermittent renewables like wind and solar, according to Brandon Rakszawski, director of product management at VanEck. The confluence of increasing electricity demand from AI and the global commitment to achieving net-zero carbon emissions have propelled nuclear energy back into the spotlight.
Uranium Prices Show Resilience Amid ETF Growth
While nuclear-energy ETFs experience an uptrend, uranium prices—integral for nuclear power generation—have remained somewhat stagnant. As of Thursday afternoon, uranium’s spot price sits at $83.95 per pound, reflecting a modest 2.7% increase in October. The rise follows a peak earlier in the year at $106.40, marking the highest level since 2007. Comparatively, uranium prices have decreased about 8% this year, contrasting sharply with the performance of nuclear-energy ETFs—32% for the VanEck ETF and 18% for the Global X ETF.
The Impact of Uranium Prices on Nuclear Power
According to Mike Kozak, a metals and mining analyst at Cantor Fitzgerald, the costs associated with uranium represent just a small fraction (5% to 10%) of the overall operational expenses of a nuclear facility. This relatively low proportion makes the industry less susceptible to fluctuations in uranium prices, allowing operators to continue utilizing nuclear power despite increases in uranium costs.
Despite uranium’s nearly 60% increase since early 2023, concerns arise regarding whether the current rally is sustainable. Kozak assesses that uranium prices have reached a support level, instilling confidence that prices will rebound and possibly surpass the earlier 2024 high of around $107 per pound.
Supply Constraints Point to Potential Price Increases
Compounding the potential for rising uranium prices are supply constraints. Kazatomprom, the world’s leading uranium miner, announced production cuts for 2025 due to project delays and resource shortages. Additionally, rising extraction taxes in Kazakhstan—from 6% to 18% by 2026—serve to further limit supply and enhance uranium’s desirability, particularly for Western utilities.
Investing in Nuclear-Energy ETFs: A Strategic Move?
The distinction between uranium prices and nuclear-energy ETF performance indicates a nuanced approach to investment. Rakszawski notes that investors should not solely focus on uranium prices when assessing nuclear-related asset performance. Nuclear-energy ETFs can provide broader exposure to the nuclear-power ecosystem while mitigating risk linked to volatile uranium stocks.
For those considering entering the uranium investment space, options include the Sprott Uranium Miners ETF (URNM), which has performed well, increasing 12.4% in October, reflecting year-to-date growth of 6.8%. The Sprott Physical Uranium Trust (SRUUF) shows a modest rise of 3.4% in October but has dropped 6% year-to-date.
Conclusion: Caution Amid Opportunity
As interest in nuclear energy grows, bolstered by significant technological demands, investors must remain vigilant. Although the nuclear-energy domain presents substantial growth potential, marked caution is advised for segments that have seen rapid appreciation.
In summary, nuclear-energy ETFs are experiencing a remarkable renaissance, and those looking to invest in this sector can do so by diversifying within ETFs to capture potential growth while managing risk in the ever-evolving energy market landscape.