Energy Stocks in the Valley: When Euphoria Gives Way to Reality

The surge of energy stocks, which still caused a stir in the fall, seems to have lost its luster this week. Particularly, stocks from the nuclear energy and renewable energy sectors are in free fall. In late summer and early fall, market activities focused on data centers and their massive energy demands for the use of Artificial Intelligence (AI). Nuclear energy was discussed as a possible solution, as well as solar energy, which could be quickly deployed in conjunction with battery storage. Now, the euphoria over rising energy demand is waning, reflected in the decline in stock prices of companies like NuScale and Sunnova. While NuScale could play a significant role in the nuclear energy sector in the future, the path to substantial revenues remains long. Sunnova, one of the largest companies for rooftop solar systems, theoretically fit well with the rapidly growing demands of data centers, yet it operates in a highly competitive market. Moreover, the hope that lower interest rates from the US Federal Reserve would lead to cheaper loans for energy developers hasn't materialized. Interest rates have risen since September and stagnated over the last year. Whether a solar park or a nuclear power plant – higher interest rates lead to more expensive energy. Rising interest rates often negatively affect renewable energy values, and this week we are witnessing the delayed response to news that has long been known. Many of the previously hyped stocks can no longer match their pandemic-era valuations. Investors are fed up with financing companies that continuously incur losses. A prime example is FuelCell Energy: despite a 1-to-30 stock split last month, the price continues to fall. When the stock price declines, raising capital becomes increasingly difficult, which can lead to a negative vicious cycle. Ultimately, it is evident that speculations in the fall drove up energy stocks, but the momentum was lost. What remains is the sober reality of the fundamental performance of these stocks, none of which are currently profitable.