AI is a game-changing technology. It can significantly boost productivity and reduce costs. That's driving companies to pour billions of dollars into buying AI chips to train models and power applications.

The AI investment frenzy has driven up semiconductor stocks like Nvidia. However, chip sellers aren't the only ones benefiting from the AI boom. One potential beneficiary that might come as a surprise is Constellation Energy (CEG -2.20%). The leading nuclear power producer's stock has surged over 140% in the past year. Here's a look at what's fueling that rally and whether the power producer's stock can keep rising.

AI needs data and power

AI applications have several major requirements. They need an enormous amount of data to train AI models and a tremendous amount of power to run the specialized chips developed by companies like Nvidia. These catalysts are driving growing demand for data centers to house AI servers and processes.

Data centers are power-hungry facilities. They consume 10 to 50 times the energy per floor space of a typical office building. Meanwhile, AI data centers use even more power. For example, a generative AI search uses four to five times more computing power than a standard search. That drives the view that AI could cause a more than 160% increase in data center power demand by 2030, growing their consumption from 1%-2% of global usage to 3%-4%.

This surge in power demand is coming at a time when the world is already racing to transition from fossil fuels to lower-emissions alternatives. It could accelerate the already robust demand for renewables. However, renewable energy can't carry this entire load on its own. More intermittent power sources like wind and solar will need help from baseload power producers like natural gas and nuclear energy.

That's where Constellation Energy comes into play. It's the country's largest producer of carbon-free energy due mainly to its leading nuclear fleet. The company could benefit from increasing demand for nuclear energy to power data centers in the coming years. That has helped fuel its massive rally over the past year.

Powerful growth ahead

Constellation Energy is working to capture the AI power opportunity. The company's CEO, Joseph Dominguez, recently commented that:

We're in advanced conversations with multiple clients, large -- well-known companies that you all know -- about powering their needs... While we're not done yet, I do expect that we will finalize agreements that will have long-term and transformational value.

Signing power purchase agreements with large technology companies to power their AI data centers would supply Constellation with increasingly visible income from its existing plants. That would add to the company's already robust earnings growth outlook. Constellation Energy expects to grow its base earnings by more than 10% annually through 2028.

That outlook also doesn't include new expansion opportunities that could arise when AI accelerates power demand. Constellation Energy could secure additional opportunities to invest in renewable energy and storage projects. It could also provide new opportunities for investing in nuclear energy. For example, the company is looking into adding new small modular reactors and other technologies to help deliver more baseload energy to data centers.

A look at what's left in the fuel tank

While Constellation Energy has a lot of growth potential, that doesn't necessarily mean it will have plenty of power to continue rallying. Shares of the lower carbon energy producer currently trade at a forward P/E ratio of more than 28.5 times. That's pretty expensive, especially for a utility stock. It trades closer to the level of the fast-growing Nasdaq-100 index (nearly 29 times forward P/E). That's much more expensive than the broader market (the S&P 500's forward P/E is around 22 times) and other large utilities (they trade at 15 to 22 times forward P/E, though they are growing slower than Constellation at a mid-single-digit rate).

The current AI craze could continue driving up shares of Constellation Energy, especially if it inks contracts to supply nuclear power to AI data centers. However, it trades at a lofty valuation. Because of that, if AI power contracts fail to materialize or it hits an unexpected speed bump, shares could cool off quickly. That's why investors might want to put Constellation Energy on their watch list for now and consider another utility with AI-powered growth potential instead.