What Every Constellation Energy Investor Should Know Before Buying

Constellation Energy (NASDAQ: CEG) has produced high-powered returns over the past year. The power producer's stock price has surged more than 40%. That has crushed the S&P 500's nearly 13% return.

This massive outperformance has made it a popular energy stock. Here are two things you need to know about Constellation before buying shares.

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Constellation Energy isn't your average power company

Constellation Energy is the country's largest low-carbon energy producer due to its industry-leading nuclear energy fleet. The company's electricity-generating assets -- which also include hydro, wind, solar, natural gas, and oil -- produce enough power to support over 20 million homes and businesses. About 90% of its electricity comes from carbon-free sources, which is 10% of the country's total.

However, Constellation Energy is different from the average electric utility. Most utilities operate regulated electricity distribution companies that have a monopoly on providing power to a specific region, overseen by a government regulator that sets local power rates. Constellation, on the other hand, is a leading competitive energy supplier. It generates electricity that it sells to utilities, as well as to commercial and industrial (C&I) and individual retail customers, typically under long-term power purchase agreements (PPAs). It's the market leader in selling power to C&I customers with a 21% share.

This business model has its benefits and drawbacks. On the plus side, it can capitalize on higher market power prices to sign PPAs at higher rates when existing contracts expire. However, it also faces competition, which can cause more fluctuations in its earnings compared to a regulated utility. The company has been capitalizing on the more recent resurgence in demand for nuclear energy from large technology companies, enabling it to secure lucrative PPAs with Microsoft and Meta Platforms. This catalyst has helped power its stock price over the past year.

It's about to get much bigger and more diversified

Constellation Energy is already one of the country's largest electricity producers. However, it's about to get a lot bigger. It agreed to buy Calpine in a $26.6 billion deal earlier this year. That transaction could close in early 2026.

Buying Calpine would significantly expand and diversify the company's portfolio. Calpine is the country's largest power producer from natural gas and geothermal resources. The combined company would have operations spanning the U.S., with a meaningfully expanded presence in key power growth markets, including Texas, Virginia, and California.

The acquisition would provide a substantial near-term earnings boost while enhancing the company's long-term growth profile. Natural gas is also seeing a resurgence in demand by technology companies to power their AI data centers. Constellation will now have a much broader power portfolio to help meet the technology industry's surging power needs.

Not your average sleepy utility stock

Constellation Energy doesn't operate a slower-growing regulated electric utility. It produces power that it sells on the open market. With power demand surging, the company's earnings are on track to grow at a more than 10% annual rate through 2028. That doesn't include the potential growth acceleration from its pending acquisition of Calpine. The company's high-powered growth potential could enable it to continue producing robust total returns.

Matt DiLallo has positions in Meta Platforms. The Motley Fool has positions in and recommends Constellation Energy, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.