One bit of Liar’s Poker, the semi-autobiographical 1989 book by Michael Lewis focusing on his experience working as a Salomon Brothers bond salesman, concerns how a fellow salesman, Alexander, reacted to the 1986 Chernobyl nuclear disaster. From the book:

Remember Chernobyl? When news broke that the Soviet nuclear reactor had exploded, Alexander called…Instantly in his mind less supply of nuclear power equaled more demand for oil, and he was right. His investors made a large killing. Mine made a small killing. Minutes after I had persuaded a few clients to buy some oil, Alexander called back. “Buy potatoes,” he said. “Gotta hop.” Then he hung up.
Of course. A cloud of fallout would threaten European food and water supplies, including the potato crop, placing a premium on uncontaminated American substitutes.

It’s a great example of third-order or lateral thinking, one that comes to mind when analyzing the recent stock-market surge for utility companies such as Constellation Energy, Vistra, and Talen Energy. It’s an investment play on the tsunami of interest in artificial intelligence. AI requires enormous amounts of energy for training and operation, leading to increased demand for electricity. So utilities with nuclear power assets have become an associated and unexpected investment opportunity due to the AI boom. Example: Constellation Energy plans to restart a Three Mile Island reactor, with Microsoft agreeing to purchase power from the plant for 20 years, in a deal valued at approximately $16 billion. 

Now I don’t recall anyone recommending investment in these companies when OpenAI rolled out ChapGPT back in 2022. To do so would have been a great feat of lateral thinking. Now, of course, investors who wonder whether there is an AI stock bubble can further wonder whether these utility stocks are overdone, as New York Times business columnist Jeff Sommer does in his recent piece, “Nuclear Power Is the New A.I. Trade. What Could Possibly Go Wrong?” 

Sommer:

As an investor, I avoid wagers on the future of any particular innovation and put my money into broad, low-cost index funds that track the entire market. I’m no more capable of judging A.I.’s ultimate potential than I am of assessing nuclear power’s long-term future in the marketplace. Is the current stock surge the start of a long-term revival? I don’t pretend to know.

Me, neither. Bubbles are often only obvious when seen in the rearview mirror, after they pop. But such financial inflation and then deflation can benefit an economy over the long run. According to finance professor Randall Morck’s 2022 paper “Kindleberger Cycles: Method in the madness of crowds?,” innovation is chronically underfunded because investors can’t capture all the benefits, which often accrue to society as a whole. Bubbles help solve this by generating overinvestment in promising new technologies.

Even if the current AI boom eventually busts, the flood of investment might accelerate progress in key AI technologies, build lasting infrastructure, fuel experiments across industries, and attract talent to the field. While many companies might fail, the overall result could be a significant advancement in AI capabilities that entrepreneurs will eventually put to productive use. 

What’s more, the AI boom is also reawakening interest in nuclear power as a source of steady and abundant clean energy. This revival of nuclear, exemplified by the restart at TMI to meet AI’s energy demands, may well mark the true beginning of a new techno-optimistic era. It symbolizes both a return to energy abundance and its application to revolutionary problem-solving technologies. What unexpected ripples might this combo create?

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