Is ASX uranium the new lithium?

Will uranium shares follow lithium into the breach?

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If you've been investing for a few years, you'd probably remember the hype that built up around ASX lithium stocks over 2021 and 2022. A recovering global economy, as well as a rapid uptick in electric vehicle adoption, helped ASX investors catch the lithium bug. Could ASX uranium shares be next?

Lithium's rise and fall

Well, let's talk about lithium stocks first. 2021 saw lithium companies like Pilbara Minerals Ltd (ASX: PLS), Core Lithium Ltd (ASX: CXO) and Sayona Mining Ltd (ASX: SYA) explode in value. In Pilbara's case, the company saw its shares rise from under $1 each in late 2020 to more than $5.30 by the end of 2022.

Other companies saw goals that exceeded even those.

Core Lithium, for example, rose from 14 cents a share on 31 December 2020 to highs of around $1.70 by November 2022. That's a rise worth more than 1,000%.

Of course, many of these gains have subsequently been lost. Core Lithium, for instance, is back to 14 cents a pop today.

But what's in store for ASX uranium shares? Is this corner of the market the 'next lithium'?

Many uranium shares have indeed been on lithium-like tears over the past year or two. Take Paladin Energy Ltd (ASX: PDN). Its shares have gained almost 150% since this time last year.

Boss Energy Ltd (ASX: BOE) stock hasn't been quite as enthusiastic, banking a 110% increase over the last 12 months.

But Deep Yellow Ltd (ASX: DYL) shares have done better, rising an astonishing 212% since May 2023.

Even the BetaShares Global Uranium ETF (ASX: URNM) has shot the lights out, with this exchange-traded fund (ETF) surging 88.7% over the same period.

So this corner of the stock market has proven to be a clear winner for ASX investors of late.

But are ASX uranium shares destined to follow the same trajectory as lithium stocks before them? And is the hype set to leave as quickly as it arrived?

Are ASX uranium shares the 'next lithium'?

It's not hard to see the appeal of uranium. It looks set to play a critical role in the global transition away from fossil fuel-based energy generation. Although nuclear energy is not used in Australia, it plays a major role in the energy markets of most other major advanced economies.

Nuclear energy does produce dangerous radioactive waste. However, it is a non-polluting source of baseload power generation from a global warming standpoint. Uranium-fuelled power plants do not produce carbon dioxide or other greenhouse gases.

Increasing demand for uranium fuel has resulted in the price of uranium rising to levels not seen for decades in recent months. This partly explains why ASX uranium shares have been such hot property.

But the future of these stocks is probably going to be determined by what price uranium commands going forward. All the goodwill coming from uranium being a future-facing source of energy arguably won't be enough to stop these stocks from falling if the price of uranium drops to where it was even two years ago.

Investors should keep in mind that all commodities are cyclical. Uranium is no exception.

However, the latest government forecasts for commodity prices will no doubt comfort ASX uranium investors.

As my Fool colleague Bronwyn discussed last month, the Federal Government is pencilling in a uranium price of US$119 per pound by the 2029 financial year. That would be up from the US$85 per pound in FY2024 (and US$51 per pound in FY2023).

If that turns out to be accurate, it would mean ASX uranium shares won't be sharing the fate of many ASX lithium stocks.

No doubt those investing in ASX uranium shares will be bolstered by that outlook. But, as always, we'll have to wait and see what happens.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Betashares Global Uranium Etf. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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