Use options to trade AI-driven power generation
Power generation has emerged as an important investment theme in the context of artificial intelligence (AI) energy demand due to the significant electricity demand of AI technologies. I will look at a little-known way to leverage it with options. AI applications, especially those involving machine learning, deep learning, and large-scale data processing, require significant computing power, increasing energy demand. Several factors make power generation an important investment theme in relation to AI: Data centers, the backbone of AI operations, are among the largest consumers of electricity. As AI adoption increases, the number of data centers and their energy needs are expected to increase exponentially. Investment in power generation becomes important to support this expanding infrastructure. Nuclear power, highlighted by Microsoft’s deal to use power generated from the decommissioned Three Mile Island nuclear power plant, is one potential source to meet this need. “Small modular reactors” (SMRs) are also gaining traction as reliable, low-carbon energy sources that could support AI’s energy needs. Aside from utilities/generators—a topic I’ve touched on before—what other industries are willing to participate in building the necessary infrastructure? How to Trade One such industry is EPC (Engineering, Procurement, and Construction), such as Bechtel, KBR, and Fluor Corporation (FLR), which is the subject of this article. A global engineering, procurement, construction (EPC) and maintenance services company founded in 1912 and headquartered in Irving, Texas, Fluor operates across a variety of industries, including energy, chemicals, infrastructure, mining, metals, power, and government services. The company is known for executing large, complex projects ranging from oil and gas facilities to infrastructure and industrial projects, making it one of the world’s largest publicly traded EPC companies. In our context, Fluor Corporation designs, builds, and manufactures power plants and provides comprehensive services for a variety of power generation facilities, such as gas, coal, wind, solar, and nuclear. Fluor provides a wide range of services in the nuclear power sector, including project management, engineering, procurement, construction, and maintenance. The company has experience developing new nuclear power plants and maintaining, refurbishing, and decommissioning existing plants. It has contributed to the construction of many nuclear facilities around the world, often partnering with other industry leaders to provide specialized expertise. FLR YTD mountain Fluor YTD Fluor’s publicly traded subsidiary, NuScale Power, is developing small modular reactor (SMR) technology, a more flexible and potentially more cost-effective approach to nuclear power generation, funded largely through Fluor’s investment. These SMRs are designed to be safer, more efficient, and adaptable to a wide range of power generation needs, making them a promising option for the future of nuclear power. NuScale itself, it should be noted, is still a startup, with an enterprise value of $2.5 billion on just $13 million in revenue. Therefore, investing in its parent company, Fluor, is a more diversified and less speculative play. Trading At just over 16.3 times estimated future earnings, Fluor trades at a meaningful discount to the broader market and at or slightly below its historical multiple. Since Fluor’s next estimated earnings date is the first week of November, I anticipate lower volatility until October expiration. Trade example: Sell FLR Oct 18 for $45, sell FLR Jan 17 for $47.50, buy FLR Oct 18 for $50 However, given both the company’s earnings release and the potential for election-related volatility in early November, I favor owning longer-dated calls and selling closer-dated calls to offset the downside; a strategy I have also used recently in other industries. DISCLOSURE: (None) All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent company or its affiliates and may have been previously disseminated by them on television, radio, the internet or other media. THE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED TO BE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE ANY SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here to view full disclaimer.
