The U.S. government is partnering with Westinghouse Electric to build nuclear reactors, and Westinghouse just happens to be owned by Canadian powerhouses Brookfield Asset Management and Cameco.
Motley Fool senior analyst Nick Sciple breaks it down in this short video. Prefer to read? There’s a transcript below.
Iain Butler: I’m Motley Fool Canada Chief Investment Advisor Iain Butler, and this is “The Five-Minute Major,” here to make you a smarter investor in about five minutes.
Today we’re discussing the massive $80 billion nuclear deal and what it means for Canadian investors.
My guest today is Fool Canada senior analyst Nick Sciple. Nick, thanks for joining me.
Nick Sciple: Great to be here with you, Iain. It’s fun to be in the other chair today.
Iain: We’re gonna drill you here on this big deal.
$80 billion deal to build nuclear reactors in the U.S.
Earlier this week, big news: An $80 billion partnership announced between the U.S. government and two very big Canadian companies, Brookfield Asset Management (TSX: BAM) and Cameco (TSX: CCO). Can you break it down, Nick, what this deal is, and why it’s happening right now?
Nick: This is a first-of-its-kind partnership that is set, as you say, to build at least $80 billion of new nuclear reactors across the United States. In terms of what’s going on, the U.S. government is partnering with Westinghouse Electric, one of the leading companies building nuclear reactors around the world. The U.S. government will help arrange the financing and secure permits to get these plants built as part of the broader agenda to maximize U.S. energy output and achieve energy sovereignty.
Obviously, it’s a huge story for Canadian investors because Westinghouse is co-owned by two big Canadian-based companies, that being Brookfield Asset Management, which owns 51% of Westinghouse, and the uranium mining giant Cameco, which owns the other 49%. So these Canadian firms are at the absolute center of this American nuclear renaissance. They are the equity holders in the company that’s going to be building these new, big reactors. The big driver for this nuclear renaissance, as I’m sure folks have seen, is the insatiable demand for power from artificial intelligence and data centres.
This AI power boom is causing U.S. power demand to grow for the first time in the better part of two decades and is straining the grid. AI needs massive, 24-7 reliable power, and nuclear energy is one of the only carbon-free ways to do that at scale.
Iain: Awesome. Perfect rundown. And I think, just to throw a blanket over everything here, we Canadian investors are sort of missing out on all the semiconductor sort of technical aspects of this AI boom. Where we are fitting in, or I was going to say plugging in, is the energy side of the equation.
So, what are the short-term, long-term implications for Canadian investors of this deal specifically, especially regarding both Cameco and Brookfield?
Nick: The short-term reaction, you saw it on the day of the announcement. Cameco’s shares up over 25% on the day the deal was announced.
That’s not just because of the ownership in Westinghouse, where they are a co-owner of the reactor builder, but they also offer secure Western-based fuel supplies for the uranium that you’re going to need to run these plants. And then if you look longer term, this deal is structured to be very lucrative for the U.S. government, for Cameco, and for Westinghouse. The U.S. government gets a 20% share of future profits from Westinghouse, but that’s only after Westinghouse has paid out at least $17.5 billion in profits to Cameco and Brookfield. There’s also a clause where the U.S. government can require an IPO of Westinghouse by 2029 if the value of that subsidiary surpasses $30 billion.
The U.S. federal government would like to lock in those gains. I think Cameco and Brookfield will as well. So this puts Westinghouse on a real clear path to IPO. That said, there are some risks. Investors need to remember that building nuclear reactors is notoriously difficult and expensive. The last two Westinghouse reactors built in the U.S. were about 7 years behind schedule and ran at more than double their original $14 billion estimate. In fact, those cost overruns are what drove Westinghouse into bankruptcy back in 2017. It’s why this is a company that’s owned by Brookfield Asset Management.
today. Also, another point on kind of where we are in the nuclear cycle … that plant that was abandoned back in 2017 for cost overruns?
Just this past month, announcements that Brookfield is going to partner with the government in South Carolina to try to get that facility back underway and under construction. So we’re in an environment where all hands on deck for AI power demand, that’s leading to potential for new construction, and also picking up all the scraps that are out there for potential energy production in the near term. So while the U.S. government is promising to fast-track these permits, and that can help put this new construction on better footing, there is still execution risk on these projects, and that is massive. So, like all things when it comes to investing, this situation is not without risk, but this deal continues this emerging theme that power demand from AI is only going to go up in the years ahead, and that nuclear energy is going to be a key player in meeting that demand. That should be music to the ears of Canadian investors like Brookfield and Cameco. And also, if we look out broader in the Canadian market, I think there’s going to be more opportunities for uranium producers and talented nuclear engineers, which Canada has many, to contribute to this boom.
Iain: Just, on the Brookfield angle, this is such a Brookfield story. This is what Brookfield does. They pick up struggling assets, like Westinghouse in 2017, and they see the value in it, bring it up to snuff, and, they’re gonna benefit for years and years ahead. Okay, just over 5 minutes. Thanks for joining us. If you want more stock ideas from us, please click the info icon in the upper right corner.
