Using options to trade the AI-driven power generation buildout

Power generation has emerged as a crucial investment theme in the context of artificial intelligence (AI) energy demand due to the significant electricity requirements of AI technologies. I’ll review an under-the-radar way to play it with options. AI applications, particularly those involving machine learning, deep learning, and large-scale data processing, require substantial computational power, increasing energy demand. Several factors make power generation a vital AI-adjacent investment theme: Data centers, the backbone of AI operations, are among the largest electricity consumers. As AI adoption grows, the number of data centers and their energy needs are expected to rise exponentially. Investing in power generation becomes vital to support this expanding infrastructure. Nuclear energy, highlighted by Microsoft’s arrangement to use power generated from mothballed nuclear plant Three Mile Island, is a potential source to meet this demand. “Small modular reactors” (SMRs) are also attracting attention as reliable, low-carbon power sources that could support AI’s energy needs. Other than utilities/generators—a theme I have previously highlighted — what other industries are poised to participate in the needed infrastructure build-out? How to trade it One such industry is EPC (Engineering, procurement, and construction), such as Bechtel, KBR, and Fluor Corporation (FLR) , which is the topic of this article. A global engineering, procurement, construction (EPC), and maintenance services company founded in 1912 and headquartered in Irving, Texas, Fluor operates across various 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 firms. Within our context, Fluor Corporation designs, constructs, and engineers electrical power plants and provides comprehensive services for various power generation facilities, such as gas, coal, wind, solar, and nuclear. Fluor offers 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 ones. It has contributed to constructing multiple nuclear facilities worldwide, often collaborating 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, financed primarily through Fluor’s investment. These SMRs are designed to be safer, more efficient, and adaptable to a range of power generation needs, making them a promising option for the future of nuclear energy. NuScale itself, it should be noted, is still a startup, sporting a 2.5 billion enterprise value on just $13 million in total revenues. Thus, investing in its parent, Fluor, is a more diversified and less speculative play. The trade At just over 16.3 times forward earnings estimates, Fluor trades at a meaningful discount to the overall market and at or slightly below its historical multiples. Because Fluor’s next estimated earnings report date is the first week of November, I anticipate lower volatility through October expiration. Trade example : Sell FLR Oct. 18 $45 put Buy FLR Jan 17 $47.50 call Sell FLR Oct 18 $50 call However, both the company’s earnings release and possible election-related volatility in early November, I favor owning longer-dated options and selling nearer-dated against it to offset decay; a strategy I’ve employed recently in other industries as well. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.