Why Did Constellation Energy Stock Surge Over 70% in the 1st Half of 2024?

Shares of Constellation Energy (CEG -1.51%) rocketed 71.3% in the first half of 2024, according to data from S&P Global Market Intelligence. That easily outperformed the S&P 500, which got off to a strong start by rallying 14.5% in the first half. The clean-energy producer's stock surged because of its strong financial outlook and a growing belief that technology companies will use nuclear energy to power their AI data centers. Here's a closer look at what powered the nuclear energy company's strong first half and whether it can maintain its momentum for the rest of this year. What powered Constellation Energy's first-half surge? Constellation Energy provided its outlook for 2024 and beyond in late February. It's targeting to deliver at least 10% annual base earnings-per-share growth through the end of the decade. Powering that forecast is the nuclear production tax credit from the Inflation Reduction Act and its ability to effectively deploy its strong free cash flow. The power company also set new capital return targets. It boosted its dividend by 25%, significantly exceeding its 10% annual growth target. On top of that, the company started its next $1 billion share-repurchase program. This strong growth outlook and capital return enhancement acted like rocket fuel for its stock, which surged from late February through the end of the first half. The company also got a boost after reporting its first-quarter results in May. A big driver is the growing support for nuclear energy. CEO Joe Dominguez commented in the first-quarter press release: "We had another strong quarter as support grows for nuclear energy as a reliable, clean source to meet growing demand from electric vehicles, heavy industry and emerging technologies, such as AI and related digital infrastructure." Constellation Energy is working to secure new power purchase agreements backed by its nuclear power assets to support AI data centers. Forecasters believe data centers could consume 8% of the country's power by 2030. That's a big factor driving the view that the country's electricity demand will surge over the coming years. Nuclear power could be crucial, since it can supply steady baseload power. Does Constellation Energy have the fuel to continue rallying? As the country's leading nuclear power producer, Constellation Energy could benefit greatly from the expected surge in electricity demand by AI data centers. This catalyst could enhance the company's already strong base earnings growth forecast. On one hand, signing new power purchase agreements to support AI data centers could give Constellation Energy's stock the fuel to continue rallying in the second half of this year. However, after its big first-half rally, the power producer trades at a significant premium to other utilities. It currently sells at a forward P/E ratio of more than 28. That's well above the 17-to-22 range of other large utility stocks. While it's growing faster, it might not have the power to rally much higher, given its already rich valuation.