CEG Stock: AI Data Center Boost for Constellation Energy

As tech firms roll out AI data center plans, nuclear is increasingly seen as the solution to their vast power needs.

Feb 26, 2025

Constellation Energy [CEG] is a Baltimore-based energy company. As well as operating the largest nuclear reactor fleet in the US, it also has numerous hydropower, solar and wind assets.

The company has approximately 2 million customers across the residential, public and private sectors, including US federal agencies and 75% of Fortune 100 companies.[1]

This stock spotlight will look at Constellation’s growth plan and how it is helping to meet the demand for energy-guzzling artificial intelligence (AI) data centers. It will also discuss the Q4 earnings, which were reported last week, and present a bull and bear case.

AI acceleration will see power demand from data centers grow by more than 160% between 2023 and 2030, according to Goldman Sachs analysts. Nuclear energy facilities, such as those owned and operated by Constellation, will likely play a critical role in ensuring there is enough electricity supply.^[2]

Major US Power Sector Deal

In January, Constellation agreed to pay $16.4bn for privately owned geothermal and natural gas company Calpine Corporation in what is one of the largest takeovers in the US power industry.^[3] The deal should close by the end of the year.

“Demand for our products is expected to grow by levels we haven’t seen in a lifetime,” Constellation CEO Joe Dominguez said on a call with investors following the announcement.^[4] Calpine President and CEO Andrew Novotny hailed the deal as a “win for every American family and business”.^[5]

According to S&P Global, the combination will be the largest independent power producer in North America,^[6] owning more than 60GW of capacity, including 31.4GW of natural gas generation and 22.2GW of nuclear power generation.^[7] To put this into context, the total nuclear power capacity in the US in 2024 was approximately 100GW.^[8]

Acquisition Fuels CEG Stock

The buyout news propelled the Constellation share price to an all-time high of $352 on January 23.

However, CEG stock has since pulled back more than 24.91%, tumbling 8.25% on February 21 after a Bloomberg report revealed that the US Federal Energy Regulatory Commission (FERC) is considering ending multibillion-dollar power auctions.^[9]

It sank a further 7.68% on February 24 alongside fellow nuclear stocks Talen Energy [TLN] and Vistra [VST] following reports that Microsoft [MSFT] had begun canceling leases for “a couple hundred” MWs of US data center capacity.[10]

Nevertheless, the stock is up 98.12% in the past 12 months as of February 25.

How Constellation Compares to Competitors

Constellation beat profit estimates when it reported Q4 earnings on February 18. Adjusted operating profit for the quarter was $2.44 per share, significantly higher than the $2.15 per share analysts had been expecting, according to LSEG data.^[11]

The company reiterated previously issued adjusted operating earnings guidance of $8.90–9.60 per share, ahead of the analyst consensus of $9.17 per share.

Aside from the Calpine acquisition, Constellation plans to invest $2.5bn this year “to reliably operate our business for the long term and fund our growth investments to help meet growing power demand,” said CFO Dan Eggers.^[12]

Fellow utility American Electric Power Company [AEP] reiterated its outlook for 2025 earlier this month, although its adjusted earnings of $1.24 per share for Q4 was slightly lower than the $1.25 per share analysts had looked for.^[13] Duke Energy’s [DUK] Q4 adjusted earnings of $1.66 per share came in just ahead of analysts’ estimate of $1.65 per share.^[14]

Here is how the fundamentals of the three energy companies compare.

Constellation’s revenue growth over the next couple of years is set to lag behind others in the power industry. The stock could be considered overvalued given that the industry P/S average for renewable utilities is 2.78.^[15]

CEG Stock: The Investment Case

The Bull Case for Constellation

Last September, Constellation signed its largest-ever power agreement with Microsoft.^[16] The utility will restart its Three Mile Island nuclear plant, shut down in 2019, to power the software giant’s AI operations.

With the acquisition of Calpine, Constellation is poised to play an even bigger role in supplying energy to AI data centers that are demanding green power solutions.

The acquisition will give Constellation a presence in California, where Calpine owns more than a dozen facilities in the northern part of the state.

According to Natural Gas Intelligence, more data centers are likely to be constructed in California, but it is difficult to get permission to build new natural gas-powered and nuclear facilities there.^[17] The deal thus solves a problem for Constellation.

The Bear Case for Constellation

FERC is due to hold a two-day conference in June to discuss potentially scrapping power auctions, which have been critical to ensuring there is enough electricity supply.

Despite the grid cracking under increased pressure due to energy-guzzling AI data centers, rising energy prices have not led to an increase in new plants being built, Bloomberg reported. A market shake-up could be needed to ensure there is sufficient supply in the future.

Independent power producers, like Constellation, Talen Energy and Vistra, could potentially be impacted by any changes.

Additionally, Microsoft’s data center dial back could impact Constellation, although the software giant emphasized that it remained on track to spend more than $80bn on infrastructure over the course of the fiscal year.

Conclusion

Constellation is playing a key role in helping to meet AI center energy demand. Its acquisition of Calpine will help to grow its presence in California where more data centers are expected to be constructed in coming years.

However, investors should be aware that changes to the way the power market is regulated could potentially have an impact on how contracts are handed out in the future.

This is for informational purposes only. OPTO Markets does not recommend any specific securities or investment strategies. Investing involves risk and investments may lose value, including the loss of principal. Past performance does not guarantee future results.

[1] https://www.constellation.com/solutions/for-your-commercial-business/channel-partners.html

^[2] https://www.goldmansachs.com/insights/articles/is-nuclear-energy-the-answer-to-ai-data-centers-power-consumption

^[3] https://www.constellationenergy.com/newsroom/2025/constellation-to-acquire-calpine-creates-americas-leading-producer-of-clean-and-reliable-energy-to-meet-growing-demand-for-customers-and-communities.html

^[4] https://www.reuters.com/markets/deals/constellation-energy-buy-calpine-266-bln-deal-2025-01-10/

^[5] https://investors.constellationenergy.com/news-releases/news-release-details/constellation-acquire-calpine-creates-americas-leading-producer

^[6] https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3306694

^[7] https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/constellation-shares-soar-on-26-6b-calpine-acquisition-87073565

^[8] https://liftoff.energy.gov/advanced-nuclear-2/

^[9] https://www.bloomberg.com/news/articles/2025-02-21/us-is-considering-scrapping-multi-billion-dollar-power-auctions

[10] https://seekingalpha.com/news/4412704-constellation-other-nuke-related-stocks-sink-as-analyst-says-microsoft-cancels-leases-for-ai

^[11] https://www.reuters.com/markets/us/constellation-energy-beats-profit-estimates-data-center-driven-power-demand-2025-02-18/

^[12] https://investors.constellationenergy.com/static-files/6d2bac6a-6dd6-496a-b421-7279a9142dc4