Constellation Energy stock soars on landmark power purchase agreement with Microsoft

Shares of Constellation Energy Corp (NASDAQ: CEG) surged in premarket trading this morning following the announcement of its largest-ever power purchase agreement with Microsoft Corp.

The Baltimore-based energy giant plans to reactivate its long-dormant Three Mile Island nuclear plant to meet the increasing energy demands driven by artificial intelligence, particularly for Microsoft’s data centers.

In a press release on Friday, Constellation confirmed that Microsoft has committed to purchasing 100% of the power generated by the plant for the next two decades.

Constellation Energy to create thousands of jobs

Resuming the Unit 1 reactor will create 3,400 jobs and add over $3.0 billion to state and federal taxes.

The move will add an estimated “835 megawatts of carbon-free energy to the grid” as well.

Constellation Energy expects that plant to come back online in 2028 provided that it secures approval from the Nuclear Regulatory Commission.

Note that Unit 1 was shut down for economic reasons in 2019 and is different from the reactor that partially melted to result in the worst nuclear accident in the history of the United States in 1979.

Joe Dominguez – the chief executive of Constellation Energy said today:

AI boom: a boon for Constellation Energy's stock

Artificial intelligence has started and will continue to boost energy demand in the coming years.

A recent estimate indicates the potential for AI data centers to require about 14 GW of additional power capacity by 2030.

That’s because an AI model like ChatGPT has to always remain on. You can never turn it off.

All in all, the Microsoft deal will help strengthen the financials of Constellation Energy moving forward.

That’s particularly significant considering CEG earned $1.68 a share on an adjusted basis in its latest reported quarter versus analysts at $1.72 per share.

CEO Dominguez still, however, touted the performance of the company’s carbon-free nuclear fleet as industry-leading.

Wall Street currently has a consensus “overweight” rating on Constellation Energy stock even though it has already nearly doubled year-to-date.

But analysts’ average price target of $222 on CEG roughly matches the price at which it’s already trading at writing.

Shares of the energy company, however, remain attractive for income investors as they currently pay a dividend yield of 0.68%.