Key Points
The data center industry is booming.
“The race to scale AI has triggered one of the largest infrastructure build-outs in modern history,” observes a recent report from global consultancy firm McKinsey & Co. “By our estimates, global spending on data centers could reach $7 trillion by 2030.”
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Public sentiment toward data centers, however, is increasingly negative. According to recent polling by Gallup, around 70% of Americans opposed building data centers in their local areas. Nearly half indicated that they were “strongly” opposed.
“Half of opponents mention data centers’ excessive use of resources, including 18% each mentioning their use of water and energy,” Gallup revealed. “Sixteen percent mention a related environmental concern of pollution, including noise pollution and air and water pollution.”
Public backlash against data centers could spell trouble for nuclear energy stocks such as Oklo Inc. (NYSE: OKLO) and NuScale Power (NYSE: SMR). Nuclear energy is experiencing a renaissance driven by AI’s rapidly rising need for power. Oklo and NuScale specialize in small modular reactors, or SMRs, which are particularly well-suited for speedy construction, with the ability to be co-located with data center infrastructure.
If data center construction faces scaling challenges due to public backlash, the case for SMRs weakens considerably. But there’s another factor at play that could also hurt the case for SMRs.
Natural gas and negative data center sentiment could slow SMR adoption
Public backlash is worrisome for SMR stocks such as Oklo and NuScale because, if data center construction is slowed, the need to pay a premium for SMR technology falls. On a per-megawatt basis, SMRs are more expensive than traditional nuclear power plants. The advantage of an SMR, however, is that it can be built quickly.
Right now, the AI industry is desperate for new power sources. Many major players are willing to pay a premium to get new power generation capacity in place. They simply cannot wait a decade or longer to get a conventional nuclear power plant up and running. In theory, SMRs can be deployed in as little as two years.
If data center construction is slowed, AI companies may focus more on conventional power plants. For example, Alphabet, the parent company of Google, is planning to build three new conventional nuclear power plants in the U.S. capable of producing at least 600 megawatts each. The ability to disintermediate SMRs and focus more on long-term energy generation may especially be the case given renewed demand for a popular fossil fuel: natural gas.
Image source: Getty Images.
On Aug. 27, I detailed how Elon Musk is directing his company, Space Exploration Technologies, to invest more aggressively in natural gas supplies to fuel its rockets and power its compute infrastructure. SpaceX even plans to build its own natural gas pipeline.
“If AI companies can meet near-term demand with natural gas,” I warned, “this fuel can then be a bridge until larger conventional nuclear power plants come online, likely at lower ongoing operating costs than a similarly sized SMR.”
Investors should remember that only two SMR systems have ever been built worldwide. NuScale has yet to commercialize its designs, whereas Oklo doesn’t even have approval from U.S. regulators to begin construction yet. It will likely be years until the U.S. has its first commercial small modular reactor online. Rising public backlash against data centers and increased interest in natural gas may push that timeline out even further.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
