Is Microsoft Stock About to Go Nuclear?

Microsoft (MSFT) is aggressively scaling its infrastructure to meet surging energy demands driven by artificial intelligence and cloud computing. As AI models grow more complex and data centers become more power-intensive, the tech giant is turning to nuclear energy to fuel its ambitious growth. Amid this backdrop, Microsoft has become a central figure in reviving the Three Mile Island nuclear plant, the site of America’s worst nuclear accident, transforming a once-shuttered reactor into a promising solution for its energy needs. More importantly, the timeline for restarting the Three Mile Island Unit-1 reactor has been accelerated in what many are calling a significant “win” for Microsoft.

But what does this accelerated nuclear revival really mean for Microsoft investors? Could this blend of Big Tech and nuclear energy be the catalyst that pushes MSFT stock to even greater heights? In this article, we’ll examine the implications of Microsoft’s nuclear-powered ambitions, helping investors determine whether MSFT is about to “go nuclear.” Let’s dive in!

Microsoft (MSFT) is a dominant force in the technology sector, boasting a diverse portfolio spanning software, cloud computing, AI, gaming, and hardware. Notably, the company is among the pioneers targeting the AI market through its partnership and substantial investments in OpenAI. MSFT has a market cap of $3.66 trillion, making it the second most valuable public company in the world.

Shares of the tech giant have climbed 16.3% on a year-to-date basis. Like its Magnificent Seven peers, Microsoft came under pressure earlier this year due to trade war concerns, with the stock down nearly 20% by early April. Then, a pause in U.S. reciprocal tariffs provided some relief, leading to the stock’s rebound from its April lows. However, the primary catalyst behind MSFT stock’s return to an uptrend was its upbeat FQ3 earnings report, fueled by robust growth in Azure and AI.

The former Three Mile Island plant — the site of the worst nuclear accident in U.S. history — could be restarted ahead of schedule, largely due to a partnership with Big Tech. Rising competition among tech companies and mounting pressure on electrical grids from the energy demands of AI computing systems have pushed Microsoft and other hyperscalers to explore nuclear power as a solution.

In September of last year, Microsoft signed a 20-year power purchase agreement (PPA) with Constellation Energy (CEG) to bring the shuttered TMI Unit-1 reactor (not to be confused with Unit-2, which experienced a partial meltdown in 1979) back online in 2028, pending federal approval. Notably, Constellation shut down the 837-megawatt reactor in 2019 after it was unable to secure subsidies it claimed were necessary for the plant to remain competitive with lower-cost fossil fuels.

Constellation Energy CEO Joe Dominguez stated at a press conference last Wednesday that the reactor is now expected to begin supplying power in mid-2027. The accelerated timeline can be attributed to major progress in hiring over 64% of the required full-time staff, training new licensed reactor operators, purchasing essential equipment, and securing a key early interconnection approval from grid operator PJM Interconnection. Constellation has also cited Microsoft’s significant investments in the project as a key factor behind the possibility of the plant reopening in Pennsylvania sooner than originally expected.

Microsoft is particularly interested in this nuclear plant due to its growing energy needs, driven by the increasing demands of its power-intensive AI data centers. It’s well known that both AI and data centers consume vast amounts of electricity — and that demand is only expected to grow moving forward. Earlier this year, the International Energy Agency projected that U.S. electricity consumption from AI and data centers will surge by 130% between 2024 and 2030. That made it especially good news for Microsoft when Constellation and PJM executives announced last week that the grid operator had expedited the hookup process.

“This plant is moving faster than we ever dreamed would be possible,” said Bobby Hollis, Microsoft’s vice president for energy. Notably, Microsoft committed in 2020 to become carbon negative by 2030. Company officials stated that they see the facility as a crucial step toward achieving carbon-negative status.

During the Q&A session of the FQ3 earnings call, management noted that the company is essentially facing power shortages in certain locations where it wants to build data centers. So, this is actually a limiting factor for further growth in the Intelligent Cloud segment. And that’s why bringing the Unit-1 reactor back online ahead of schedule would be a major win for Microsoft.

On May 1, MSFT stock climbed more than 7% after the company posted a strong FQ3 double-beat. Its total revenue stood at $70.1 billion, up 13% year-over-year and beating the Wall Street consensus by $1.62 billion. Azure was the primary driver of the company’s growth in the quarter.  Revenue from the Intelligent Cloud segment — which includes Azure, Server Products, and Enterprise Services, and is being boosted by AI and cloud-based solutions — rose 21% year-over-year to $26.8 billion. Azure and other cloud services saw a 33% increase, with roughly half of that growth attributed to AI.

The company’s other business segments also delivered solid performance. Productivity and Business Processes revenue, which includes the Office suite, LinkedIn, and Dynamics 365 for enterprise resource planning, grew 21% year-over-year to $26.8 billion, driven by strong growth in Microsoft 365, Dynamics 365, and LinkedIn. Revenue in the More Personal Computing segment stood at $13.4 billion, up 6% year-over-year, driven by better-than-expected results across all businesses.

Even more impressive, both operating income and net income grew faster than revenue — up 16% and 18% year-over-year, respectively —highlighting that the business is scaling effectively, driving not just revenue growth but also margin expansion. This is likely due to ongoing efficiency gains in Azure and cloud. As a result, MSFT posted EPS of $3.46, comfortably beating expectations by $0.24.

Meanwhile, Microsoft returned $9.7 billion to shareholders through dividends and share buybacks in the quarter, an increase of 15% year-over-year.

Looking ahead, management projects FQ4 Intelligent Cloud revenue to range between $28.75 billion and $29.05 billion, representing growth of 20% to 22% in constant currency. Azure is expected to remain the primary driver of revenue growth. The company guided for Azure growth of 34% to 35% in constant currency for FQ4.

Analysts currently expect the company to post double-digit growth in both its top and bottom lines for the foreseeable future. For FY25, the tech giant is projected to deliver EPS of $13.40, a 13.59% year-over-year increase, and revenue of $279.03 billion, up 13.83% year-over-year.

In terms of valuation, MSFT stock doesn’t look cheap at current levels. Priced at 36.71 times forward earnings, the stock trades well above the sector median of 23.78x and its 5-year average of 31.81x. I believe caution is warranted at this point, as the current valuation offers only limited room for multiple expansion. With that, it would be ideal to scoop up the stock during pullbacks, when the multiple returns closer to its historical average of 31–32x.

Wall Street analysts remain bullish on Microsoft, assigning it a “Strong Buy” consensus rating. Out of the 46 analysts offering recommendations for the stock, 37 rate it as a “Strong Buy,” five give a “Moderate Buy” rating, and the remaining four advise holding. The average price target for MSFT stock is $525.46, representing 7% upside from current levels.

On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com