Why Are Nuclear Stocks Vistra Energy, Constellation Energy, and Centrus Energy Down Today?

Some of Wall Street’s recent favorite nuclear energy stocks - including utility providers Vistra Energy (VST) and Constellation Energy (CEG), and enriched uranium fuel provider Centrus Energy (LEU) - are trading down sharply in today’s session, alongside a number of their peers. Today’s bout of profit-taking follows massive recent gains in many of these names, driven by investor optimism over Magnificent Seven investments in nuclear energy to fuel artificial intelligence (AI) data centers. 

So, investors today are reacting dramatically to news that the Federal Energy Regulatory Commission (FERC) rejected Talen Energy's (TLN) proposal to increase power capacity at its Susquehanna nuclear power plant, which was intended to supply an Amazon (AMZN) Web Services data center. Talen Energy is evaluating its options following the FERC decision, and emphasized the potential negative impact on economic development in states like Pennsylvania, Ohio, and New Jersey. 

While many existing deals, like the Constellation-Microsoft (MSFT) pact for Three Mile Island, won't be affected, this decision has created uncertainty and raised concerns about potential regulatory hurdles for similar projects, sparking today’s sell-off. At last check, TLN is down 4.5%, CEG is more than 10% lower, LEU is down 26%, and VST is off 2.5%. 

FERC’s ruling underscores the heightened risks associated with investing in nuclear energy stocks in the current environment, though with many of the top players also doubling as well-established utility companies, investors have greater visibility relative to other high-risk, emerging growth sectors.

In fact, Vistra Energy is the top-performing S&P 500 Index ($SPX) stock of 2024, with a market capitalization of approximately $41 billion. The company's forward adjusted price/earnings (P/E) ratio of 21.63 is notably high, and the forward price/sales (P/S) ratio of 2.49 implies that the market values each dollar of VST's sales at a premium, which could point to overvaluation - unless future sales growth justifies this valuation.

With VST due to report earnings later this week, the outperforming utility stock is now down about 20% from its October highs.