Looking for an AI stock? Consider NexGen Energy (NYSE:NXE) instead

With artificial intelligence at the center of the debate, the natural reaction is to grab a piece of the pie. However, investors interested in AI should consider NexGen Energy (NXE) instead. Specializing in the exploration and development of uranium properties, NexGen seems far removed from the technology ecosystem. While the relationship is tangential, the relevance is not, particularly given the extraordinary energy consumption of advanced innovations. As such, I am bullish on NXE stock as a speculative play.

The numbers in context could make NXE stock attractive

At first glance, NXE stock looks pretty interesting. Even without considering energy consumption, nuclear power remains an important part of the broader infrastructure picture. From a psychological perspective, the stock is trading in the single digits, which looks pretty “cheap.” Better yet, analysts who cover NexGen unanimously rate the stock a buy.

However, a closer look at the numbers raises some concerns. At present, NexGen is a company that has not yet generated revenue and operates in the upstream segment of the value chain. That said, Wall Street experts estimate that by the end of fiscal 2024, the uranium specialist can post revenue of $1.47 million. Better yet, the highest estimate is $2.94 million.

Still, compared to its 560.92 million share count, the projected sales multiple is extreme. Assuming $1.47 million in revenue, the multiple would be nearly 3,000 times. Mathematically, if NexGen manages to hit the most optimistic target, sales would fall significantly. However, they would still be very high, at 1,414 times forecast revenue.

To put that in context, nuclear energy competitor Cameco (CCJ) has a price-to-sales ratio of over 12x. If NexGen were to achieve such a multiple – and assuming the stock price and number of shares outstanding remain the same – the company would generate about $346 million in revenue.

That may not happen anytime soon. Still, in the long term, if NexGen is successful in its upstream uranium mining efforts, the valuation could start to look more reasonable.

Fundamentally, one of the key catalysts for NXE stock and the broader uranium industry is the increasing reliance on rather limited supply routes. According to one study, the global uranium mining market could reach a valuation of $11.38 billion by 2030. This implies a compound annual growth rate of 4%.

The geopolitical context is also an increasingly interesting factor for NXE stock. Indeed, not all uranium producers come from a politically stable or favorable jurisdictional environment. For example, Kazakhstan is the leading producer of this key asset. Other countries, such as Uzbekistan, Russia and China, are also key players.

In other words, demand is likely to spike not just for uranium supplies, but also for uranium from reliable partners. From the U.S. perspective, there is nowhere more reliable than Canada, where NexGen is headquartered. So NXE stock is worth keeping on the radar.

Power Consumption Makes NexGen a Stock to Watch

Of course, the other fundamental catalyst for NXE stock is the global artificial intelligence arms race. Everyone is seemingly trying to extract new applications and new avenues of productivity from digital intelligence. However, as I explained last month, AI is not free.

Sure, from a consumer perspective, using chatbots based on large language models to discover new recipes or get help with homework may be a free activity. But behind the scenes, the energy consumption is unprecedented. Thanks to AI and the proliferation of data centers, these technologies are putting pressure on the national power grid.

TipRanks’ Paul Hoffman posted a similar story about AI and its growing relevance to the nuclear power sector. The expert wrote: “Nuclear power, with its renewed appeal due to its low carbon emissions and 24-hour reliability, appears ideally positioned to meet the growing demand for AI-powered energy.”

Moreover, the problem could get worse before it gets better. In a roundabout way, this was one of the concerns published by Goldman Sachs (GS). In essence, the real productivity gains of AI protocols are too limited compared to the energy consumed. However, such warnings are unlikely to be enough to stop the AI ​​gold rush.

Given the company’s commitment to developing the latest, greatest, and smartest systems, the reality is that society should expect more energy consumption, not less. In practice, no other energy source has as high an energy density as nuclear fuel. Therefore, NXE stock, while extremely speculative, has a chance to gain traction.

Is NexGen Energy Stock a Buy, According to Analysts?

On Wall Street, NXE stock has a Strong Buy consensus rating based on four Buy ratings, zero Hold ratings, and zero Sell ratings. The average price target for NXE stock is $9.41, implying a 32.7% upside potential.

Takeaway: NXE stock is risky, but rising demand could give it a boost

Based on the numbers alone, NexGen Energy looks extremely speculative. While nuclear power has always been a relevant sector, NXE stock is overvalued relative to the low revenue it is expected to generate. However, over the long term, rising demand for uranium – driven largely by the stratospheric AI race – suggests that even a speculative upstream player could have a chance to move up.

Disclosure