Should You Buy Constellation Energy While It's Below $360?

The explosive growth in artificial intelligence (AI) creates a huge opportunity for investors. As demand for the next-generation technology accelerates, so does the need for powerful data centers.

According to research from Goldman Sachs, global power demand from data centers is expected to increase by 50% by 2027 and by as much as 165% by the end of the decade.

Top tech companies such as Microsoft and Meta Platforms are covering their power needs through agreements with utility providers like Constellation Energy (CEG 2.22%). It’s a leader in nuclear energy and has a portfolio of renewable energy assets, making it a go-to choice for hyperscalers seeking clean, reliable, and uninterrupted power.

Constellation’s stock had gone on a tear but has recently declined 19% from its recent peak of $412. With shares trading below $360, is it a buy? Let’s explore the company and its opportunities over the next few years.

Constellation is the largest nuclear power company in the U.S.

Constellation is a leader in clean energy. With 14 nuclear generating stations and a capacity of around 22 gigawatts (GW), it is also the largest nuclear plant operator in the U.S.

Not only is it the largest, but Constellation also operates its nuclear plants at best-in-class levels, achieving an average nuclear capacity factor of 94.6% over the past three years. This represents a roughly 4 percentage point improvement over the industry average since 2013.

This translates into more revenue per reactor and more durable energy to continue producing power during high-demand periods.

The energy company has assets in crucial regions in the U.S., including the western half of the PJM region (a major U.S. electricity market and transmission system that covers 13 states and Washington, D.C., and serves over 65 million people) and the MISO region (the Midwest, the Plains, and parts of the South).

The company has also expanded its presence in California with its $27 billion acquisition of Calpine. This will give the utility Calpine’s portfolio of natural gas and geothermal assets, along with a coast-to-coast presence. It expects to close the deal in the fourth quarter.

Securing deals with hyperscalers

Earlier this year, Constellation signed a 20-year power purchase agreement (PPA) with Meta Platforms. The deal is for the entire output of the Clinton Clean Energy Center, which has a capacity of 1,121 megawatts of nuclear power.

Thanks to this deal, management has relicensed the plant and will continue to do so for the life of the agreement. The company is expediting the restart, which analysts say is trending ahead of schedule.

Joseph Dominguez, CEO of Constellation, has said that it is “quite close” on other deals with hyperscalers and the utility is “hopeful that this stuff will get done soon.” He expects to announce another deal before the fourth-quarter earnings call, scheduled for late February.

Tight energy markets are a tailwind for Constellation

Energy is needed for these data centers, and Microsoft CEO Satya Nadella has said that the lack of power is a bottleneck for hyperscalers.

The PJM 2026-2027 capacity auction confirms this. Constellation’s fleet of reactors cleared the auction, and the price hit the maximum allowable across the region. This result signals severely tightening supply margins in the face of rapidly growing demand, which bodes well for the company’s earnings prospects.

Analysts covering the stock project adjusted earnings per share (EPS) to nearly double from 2024’s EPS by 2028, representing 18% compound annual growth.

The stock is pricey for a utility at 29.9 times next year’s earnings forecast, although it has decreased from its recent peak of 35.7. That said, Constellation Energy has a substantial portfolio of energy assets, including a range of renewables in key U.S. regions, positioning it well to benefit from surging energy demand in the years ahead.