Welcome to another issue of Volunteer Capital Insights! We're always happy to have you hear our takes on the world. Some exciting headlines have come up in the past week, including Three Mile Island powering back up, Musk pulling off some incredible feats, convoluted economic data, election news, and Rio Tinto's big M&A deal. We thank you all for joining us and would greatly appreciate it if you share our newsletter with your friends, family, and colleagues.
A special thanks to Peter Costa from Costa’s Corner for his help in editing and guiding us through this week’s issue. Don’t forget to check out his Substack for more great content!
Let’s break it down!
Equities
Reviving Three Mile Island: Microsoft's Bet on Nuclear Energy
On March 28th, 1979, the United States experienced its most catastrophic nuclear meltdown at Three Mile Island, a nuclear power plant on the Susquehanna River near Harrisburg, Pennsylvania. Despite the meltdown, the plant continued to run for 40 years, until 2019, when it was shut down due to the lack of financial aid from the state. You may be wondering what this has to do with the capital markets. Well, Microsoft has recently announced that they have signed a power deal with Constellation Energy to help bring the Three Mile Island back to life.
Why does Microsoft need energy from a nuclear power plant? A sudden and massive increase in the need for electricity to power data centers can answer that question. Microsoft has decided to use nuclear energy, which is much more reliable than solar or wind, in order to attempt to stay ahead of the AI wave that has swept across the world. Constellation will have to invest $1.6 Billion in order to restart the power plant, which will be able to produce 835 megawatts of electricity for Microsoft (Enough to power 700,000 homes). Many analysts believe that this will start a trend of big tech companies restarting plants. But given the relative rarity of opportunities to snag power from recently closed or closing plants, the biggest question for the industry is whether this wave of interest will translate into building new reactors as well.
Although Microsoft stock has remained relatively stable over the past month, Constellation Energy stock has jumped nearly 30%. This partnership highlights nuclear energy's growing role in meeting the energy needs of data centers and other industrial operations. Investors might expect increased interest in nuclear stocks, particularly as nuclear becomes more central to decarbonization efforts, which aligns with the energy transition goals of large tech firms . An important thing to remember is that this development strictly aids Microsoft's 'green transition.' It does not address the underlying energy needs across the country or the rapidly declining strength of the energy grid. While nuclear energy is a growing form of 'green' energy, spent fuel rods remain an important limitation to its widespread adoption.
By: Lucas Heifner
Tech
What a Week for Musk
Over the past week, Elon Musk has had several notable accomplishments that are starting to separate him as one of the greatest innovators ever. Tesla's Robotaxi Unveiling: This highly anticipated event revealed Tesla's first dedicated self-driving vehicle, the "Robotaxi." This marks a significant milestone in Musk’s long-term vision of autonomous transportation. The Robotaxi, designed without a steering wheel or pedals, is built to operate entirely on Tesla’s Full Self-Driving (FSD) technology. Some analysts believe that this is one of the most significant moments for Tesla in years, potentially redefining the electric vehicle industry.
At the Robotaxi event, Musk also showcased an update on Tesla's humanoid robot, Optimus. Optimus 2 represents the next step in Tesla's AI-driven robotic ambitions, with potential applications in both manufacturing and domestic use. This event also focused on Tesla’s advancements in AI, which is expected to play a significant role in the company’s sustainable future.
SpaceX Starship Rocket Launch: Along with the Tesla event, SpaceX also successfully launched the fifth test flight of its megarocket from Texas. The mission aimed to test the Super Heavy booster’s mid-air recovery system, utilizing the innovative "chopstick" arms on the launch tower to catch the booster upon its return. This was a critical step for the development of fully reusable spaceflight systems, which are crucial for SpaceX’s future deep space missions, including NASA's Artemis program to the Moon. These accomplishments are part of Musk’s broader vision for integrating AI and autonomous technology into daily life, as well as the continuing development of reusable and sustainable space travel.
By: Will Laney
Economics
Tangled Economic Data
In the past few weeks, we’ve seen some very convoluted economic data. To start October off, we got a strong jobs report, with nonfarm employment increasing by 254,000. While this is a strong sign compared to the previous month, the big story here is the revisions. For the past year, we’ve seen strong initial releases followed by massive downward revisions. September had the first sign of strong upward revisions this year.
Looking at the manufacturing side of the economy, it gives us insight into the future of the current business outlook. The PMI dipped in September from 47.9 to 47.3, marking the third straight month of manufacturing decline. The eye-catching portion of the PMI was the big decrease in new orders and inventories, which signals broader economic weakness.
Now, onto inflation, this is the most controversial part of the economy. The CPI came in at 2.4%, above the expectation of 2.3%, and core CPI rose in September from 3.2% to 3.3%. Core CPI removes more volatile items like food and energy. While this might seem like a minor increase, we’re seeing inflation rise during the same month as a big 50 bps Fed rate cut. The Fed now faces an even tougher challenge, with manufacturing in the private sector declining, jobs increasing, and inflation potentially rebounding. It wouldn’t be surprising if the Fed keeps rates steady in November and December, despite previous expectations of two more 25 bps cuts.
By: Andrew Brown
Rio Tinto to Acquire Arcadium Lithium
On October 9th, 2024 Rio Tinto struck a deal to buy Arcadium Lithium for $6.7 billion at a 90% premium to the stock’s closing price last week. Lithium has become a priority target for Rio Tinto as it seeks to rely less on iron ore for-profit and produce more commodities that are growing in popularity as the world decarbonizer.
Rio Tinto has tried to create their own lithium operations from the ground up, but struggled as business plans have faced setbacks. They planned to build a lithium mine in Serbia, however faced pressure to stop the operation from community members. Leveraging the takeover of an already established company, Arcadium Lithium, would give them immediate access to metal production sites. They are anticipating a rise in the demand for lithium because of the metal’s increasing importance to EVs and large batteries that store energy until it is needed, which are essential for supplying clean energy.
After a two-year boom in the industry, prices began to fall forcing many companies to terminate their plans for lithium mines and investment plans in the industry. Rio Tinto timed its acquisition with the markets, looking to invest when the prices were low. The CEO of Rio Tinto, Jakob Stausholm, says that he believes in the demand for lithium and thinks that the addition of the industry would increase the value of his company. According to market analysts, Arcadium Lithium was valued at $10.6 billion in May of 2023. This shows how the market has faced steep declines in value, allowing for entrance by Rio Tinto as prices are no longer too expensive.
This is a strategic acquisition for Rio Tinto as the focus of global energy is shifting to clean means of production. Investing in lithium production will position Rio Tinto to be ready to contribute to EV batteries that rely on lithium, allowing them to take advantage of the market shift. After failing to build their own lithium production, they shifted their focus to acquiring an existing lithium-producing business and working around the challenges of creating their own from the ground up. This method of growth, hopefully, will prove to be more efficient and simple.
By: Haley Patzer and Connor Benoit