Constellation Energy (CEG) has signed a new deal with Microsoft (MSFT) to provide it with clean energy to satisfy the tech giant's electricity needs for its cloud computing and AI data centers. This deal could see the reopening of the Three Mile Island nuclear plant, and according to Jeffries, Microsoft could be paying $112 per megawatt hour, one of the higher estimates across the Street.

Jefferies analyst Paul Zimbardo joins Catalysts to discuss the deal between Constellation Energy and Microsoft, and whether the presidential election could weigh on its completion.

"It was a very positive update for Constellation. The struggle on the stock is it's pricing in a lot. When we go through plant by plant, the fundamentals, the market is assuming that roughly 50% are a little bit more than 50% of their portfolio will contract at these very high prices... the $100+ per megawatt hour. So expectations are very high," Zimbardo says of the news.

Despite regulatory hurdles ahead, if the plan goes through, Zimbardo explains it could be a "game changer" for both Constellation and the broader energy sector. "Microsoft is paying roughly double what market power costs, around $55 a megawatt hour. So this was a significant update, paying a much larger premium than even the prior transaction with Amazon (AMZN) and a different nuclear reactor, Susquehanna, owned by Talen (TLN)," he explains.

Zimbardo adds, "So the way we frame it, if, as we call it, Constellation runs the table and is able to secure all their capacity, our upside case, the stock can easily double from here. But there's a lot of questions and execution that has to go in it."

As the presidential election lies just over a month away, he does not expect the outcome to weigh too much on the deal. He notes that Constellation is the largest US nuclear owner-operator and they have a good track record both operationally and financially. "They've been working on this project for over a year, so we feel pretty comfortable that they will be able to execute on this," he adds.

Zimbaro concludes, "Nuclear has become increasingly bipartisan, clean energy as well as the strong union jobs. So we think that the strong narrative towards nuclear will hold even regardless of the election outcome."

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This post was written by Melanie Riehl