Nuclear Reaction
Macro Outlook
The Economy
Nuclear Renaissance
Large Tech companies are jumping over each other to source base electrical power to support the expected growth of their artificial intelligence model needs. Nuclear energy provides efficient and clean baseload power which is perfectly suited for their needs. They have noticed. In just the past month, Amazon, Google, Microsoft and Nvidia announced investments for nuclear power.
If the nuclear renaissance occurs, it will be a major reversal; Â the chart below shows the diminishing importance of nuclear energy in electricity generation over the last 25 years. The main reason for the relative drop in nuclear electricity generation is the extremely high initial cost to build a nuclear reactor.
The graphics below highlight nuclear reactor construction over the years. As we can see, North America and Europe grew their nuclear energy production 50 years ago and Asia has been the only region where new reactors have been built recently. Globally, after 20 years (1990 to 2010) with very few new constructions, there has been a pick-up  over the last 15 years. And if the recent announcements are sustained, we could see a welcomed return for more nuclear plant constructions.
One element that supports more construction is the longevity of the reactors. We are seeing life extension of old reactors past what was expected at the time of construction. Safety is such an important consideration for nuclear that conservatism was also used to estimate the useful life of reactors.
Essentially, the main financial issue for nuclear reactors is extremely high fixed cost, the main benefit is the fact that they last longer than expected. From this standpoint, building nuclear reactors can be seen as a good intergenerational transfer.
The Opportunities
Long Europe
The economic potential of Europe is lower than the United States. It has an older population that will lead to a falling workforce unless immigration continues unabated and it does not possess the economic dynamism of the United States. From an investment standpoint, this is well-known and reflected in the valuation of equities (the average P/E in Europe is 16 versus 26 for the United States). Considering the low expectations of Europe relative to the United States and the relatively cheap valuation, it would not take much for Europe to outperform which we expect will happen soon.
Long Deglobalization
The conflict between China and the United States remains top of mind and seems unlikely to be easily resolved. The wars in Ukraine and the Middle East highlight the advantage of self-sufficiency. As the US election likely comes to a conclusion next week, favoring local production over global production will continue to be part of the agenda for both political parties.
Short Baby Boomers Vitality
Baby boomers have dominated society since their birth. They’ve had it pretty good, strong growth in the economy, affordable houses when they needed it and strong financial markets for their retirement. The problem is there will be less of them in the future. Companies that depend on baby boomers with an active lifestyle for revenues may need to redefine themselves. The average age of a baby-boomer is 70 and their remaining life expectancy is about 15 years. Less baby boomers and less healthy baby boomers could have a negative effect on time-share vacations, some motorcycle brands and others that cater to boomers.