Recent fluctuations in the U.S. stock market have been influenced by changing expectations regarding Federal Reserve interest rate cuts and potential inflation risks. Hedge funds, often referred to as "smart money," have been making significant adjustments to their portfolios. Notably, nuclear power stocks have emerged as a new favorite, while the previously popular "Trump trades" have seen profit-taking, putting pressure on cyclical sectors such as industrials.
Goldman Sachs analyzed 697 hedge funds managing over $3 trillion in assets and found that fund managers are increasingly investing in nuclear power companies. This shift is driven by anticipated electricity demand surges from the artificial intelligence (AI) industry. With AI and data center power needs rising rapidly, tech giants like Google and Amazon have turned to nuclear energy. Both companies have recently signed agreements with nuclear energy firms to advance small modular reactor (SMR) development. As a result, interest in the nuclear sector is growing, with Constellation Energy (CEG, Financial) emerging as a top performer among S&P 500 companies.
Constellation Energy is the most popular long position among hedge funds on Goldman Sachs' VIP list. The company operates approximately 6.4 gigawatts (GW) of nuclear power capacity in the U.S., including plants in Texas, Pennsylvania, and Ohio. Talen Energy, another independent power producer in Texas, also made it to the VIP list. Earlier this year, Amazon Web Services (AWS) agreed to a $650 million deal with Talen Energy for long-term power supply from its Pennsylvania nuclear facility.
The potential of AI development presents significant opportunities for the nuclear power industry. Boston Consulting Group predicts that data center power demand will grow by 15%-20% annually, reaching 16% of U.S. energy demand by 2030. Additionally, the growth of chip manufacturing, electric vehicles, batteries, and solar panels will further drive energy demand.
Goldman Sachs' analysis shows that hedge funds have maintained a stable exposure to AI-related themes since Q3, with the "Magnificent Seven" tech stocks ranking first on the VIP list. This has helped U.S. long/short funds achieve a 14% return year-to-date, more than double the typical annual return over the past 20 years.
