Welcome back to the UK Shares tip column, where we aim to beat the market by selecting fantastic opportunities from the best companies in the UK market. Performance of our tips in October has been a little more muted than the strong month of September. Our tip from the prior month, has done well however - up 10% on strong results and a return to AuM growth for the asset manager.
Future PLC sideways range
This month I have decided to part ways with the holding in Future PLC [LON:FUTR]. Unfortunately this trade never managed to break out of the sideways range, despite some recent signs a turnaround might be underway, and the nice amount of cash on the balance sheet. The CEO has decided to step down, and I no longer feel comfortable in this company as the chart pattern has started to turn and it could indicate the recovery has failed. We are down 20% on the position which, although disappointing, allows us to exit with our shirt on our back.
AI driving powerful returns
This week we are going marginally outside the remit of the FTSE350 in search of potentially greater returns for the portfolio. As I am sure you are well aware, a boom in all things Artificial Intelligence is currently underway, with a global arms race to build competitive advantage in the range of applications that generative AI progress has enabled. This technological revolution has driven powerful returns for companies that are associated and sell products and services to AI customers.
We have seen market beating performance from the obvious beneficiaries - chip makers, AI hardware installers however a second wave occurred for secondary beneficiaries such as those providing ventilation equipment to data centres, subsea cabling companies and even electricity utilities as power consumption has surged due to the power-hungry data centre capacity ramp up.
AI to boost power generation sector?
Now, industry experts are predicting a third wave of success related to AI, and this is within a particular niche of the power generation industry - nuclear power. It has taken a long time for nuclear to shake off the reputational damage from the Fukushima disaster in 2011. But over the last few years public opinion on nuclear power has started to warm. The limitations of renewable energy sources have begun to come to the forefront, and the ability to provide clean, emission-free power at a consistent level (without the need for battery storage) has become highly desirable. We also look to decommission dirtier elements of the grid such as coal power plants.
As with many things, the fundamentals of nuclear technology has also come on leaps and bounds since 2011. The modern nuclear solution is likely to be what is known as ‘SMR’ or Small Modular Reactors. These are smaller, easier to install and get up and running reactors, much less burdensome than your traditional mega-size nuclear plant. This smaller size will also likely aid public opinion as the technology will be more manageable.
This SMR technology has taken off in the U.S, as tech companies have recently signed billions of dollars of sole source agreements to generate power from SMRs to flow directly to data centres. Amazon [NASDAQ:AMZN], Google [NASDAQ:GOOGL] and Microsoft [NASDAQGS:MSFT] have signed these nuclear agreements in the past month. In the case of Microsoft, the company has agreed to pay double the current electricity tariff to its nuclear power provider to secure the energy, probably to secure emission-free reliable power to meet the company’s net zero targets and manage its consumption profile.
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