Uranium stocks are soaring. Here are the two catalysts driving them higher

The uranium sector is running hot again after fourteen of the world's largest banks and financial institutions pledged to increase their support for nuclear energy on Monday.

This adds further momentum for the uranium sector, after Baltimore-based Constellation signed its largest-ever power purchase agreement with Microsoft. The deal seeks to resurrect a unit of the Three Mile Island nuclear power plant in Pennsylvania, which shut down five years ago.

Two market moving catalysts

At a New York event on Monday, major financial institutions including Goldman Sachs, Bank of America, Barclays, BNP Paribas and Citi expressed support for tripling global nuclear energy capacity by 2050, a goal initially proposed at last year's COP28 climate negotiations.

Why does this matter: The nuclear industry has long faced challenges in securing financial backing due to complex project financing, high risks and ESG compliance. While specific actions remain undefined, nuclear experts view this public endorsement as a significant acknowledgment of the sector's crucial role in the transition to low-carbon energy.

Over the weekend, Microsoft announced a 20-year deal with Constellation Energy to restart an 835-megawatt nuclear reactor at the Three Mile Island and launch a new Crane Clean Energy Center.

"This agreement is a major milestone in Microsoft's efforts to help decarbonise the grid in support of our commitment to become carbon negative. Microsoft continues to collaborate with energy providers to develop carbon-free energy sources to help meet the grids' capacity and reliability needs," said Microsoft's Vice President of Energy, Bobby Hollis.

Why does this matter: The Three Mile Island nuclear power plant was shut down in 2019 due to poor economics. Analysts are US equity research firm called the deal "an important catalyst in demonstrating the value of nuclear generation" in the age of artificial intelligence. In 2020, Microsoft made an ambitious pledge to be carbon-negative by the end of the decade. But by the end of 2023, its total emissions were approximately 30% higher than in 2020. And that's set to balloon even further with the energy demands of AI.

Uranium stocks soar

ASX-listed uranium stocks have bounced strongly over the past couple of days but most are trading well-below peaks from earlier this year.

Latest analyst coverage

Macquarie analysts initiated coverage on Lotus Resources earlier this week, with an Outperform rating and $0.40 target price. The Africa-based uranium developer has two open pit uranium projects – Kayelekera in Malawi (restart) and Letlhekane in Botswana (greenfield).

"Lotus' assets sit at the upper end of the cost curve, and will be highly leveraged to rising uranium prices ... Kayelekera restart is rapidly de-risking and is not yet reflected in the share price," the analyst said. "After Paladin's success, we see Lotus as the next logical candidate to bring an idled uranium asset back into production with relatively low capex."

More broadly speaking, the analysts are bullish on the uranium outlook, underpinned by new reactor builds, a lack of additional supply and falling stockpiles.

Persistent shorters

Short interest in uranium stocks has surged, with Paladin Energy becoming the fourth most shorted ASX stock. Paladin's short interest skyrocketed from 2.8% three months ago, now trailing only Syrah Resources, IDP Education, and Pilbara Minerals.