NuScale power(NYSE: SMR) is a newcomer looking to be at the forefront of what could be a wholesale overhaul of the nuclear power industry. That’s the hope anyway. However, at least one notable utility industry veteran doesn’t think NuScale Power’s approach to nuclear power will work out as well as investors now seem to hope, given the stock’s meteoric rise recently (the stock is up by 400% increase! Here’s how investors should think about NuScale Power.
It’s important to recognize right away that NuScale Power is not for the faint of heart. First you have to believe in the long-term future of nuclear energy. You also have to believe that an untested approach to nuclear power generation is likely to be successful. Then you must be prepared to own a company that suffers losses while it works to build a business around that untested approach. Only the most aggressive investors should look at NuScale Power.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Image source: Getty Images.
The big story here is that NuScale Power is trying to build small-scale modular nuclear reactors (SMRs). While theoretically attractive, the technology has not yet been tested in any meaningful way. However, if it can be developed, there are many potential benefits. For example, building small reactors will likely be easier and, on a large scale, cheaper than building large nuclear reactors. Small reactors are also probably safer than large ones. Given the modular design, they will also likely be easier to place where they are needed.
However, it is not an easy or cheap process to get from a concept to a full-fledged product. It becomes even more difficult when you add in the rightfully onerous regulations surrounding nuclear energy companies. These are all part of the problem NextEra Energy(NYSE: NO) CEO John Ketchum made this point when he questioned the potential of small-scale modular nuclear reactors during his company’s third-quarter 2024 earnings conference call.
To be clear, Ketchum is not suggesting that small-scale reactors are a dead end. In fact, he noted that NextEra Energy is keeping a close eye on the technology. But right now he doesn’t see it playing a material role in the energy market until the “end of the next decade.” This means that the technology will have to continue to develop for another ten to fifteen years before it is ready for prime time.
That’s actually not an unrealistic view of the situation and, as the CEO also noted, there are only “a handful [of SMR companies] that really have a capitalization that can actually get them through the next few years.” If a company can’t get through ‘the next few years’, it probably won’t be able to survive another decade of heavy investment spending. the research, development and capital investments required to bring small-scale nuclear reactors to market.
NuScale Power is used for this purpose, which benefits from the support of a financially strong construction company Fluorinemakes it clear in its 10-K that it will likely continue to bleed red ink for years to come. So Ketchum’s somewhat bleak prospects shouldn’t come as a shock to anyone, least of all NuScale Power investors.
NextEra’s CEO also noted another aspect of the problem, highlighting that small-scale modular nuclear reactors are still very expensive because they are a new technology. This is true of virtually any new technology, as building the first of anything is usually quite expensive. You won’t see costs drop until large-scale production begins. Of course, this can only happen once a prototype has been built and tested. But even then, NuScale Power and any other SMR company will still have to build a manufacturing facility and ramp up production, which is also no easy task. NuScale Power is still at the beginning of a very long journey.
Ketchum isn’t really saying that small-scale modular nuclear reactors, like the ones NuScale Power is trying to build, are a dead end. He basically says that his company needs energy solutions now, and new nuclear technologies simply don’t help in that regard because they are still in the early stages of their development. The takeaway for NuScale Power investors from all of this should probably be that NuScale Power still has a long way to go, in terms of time and money, before it is a self-sustaining company in the long term.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $23,446!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,982!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $428,758!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 4, 2024
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool holds and recommends NextEra Energy. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
NextEra Energy CEO says NuScale Energy’s business model isn’t worth it originally published by The Motley Fool
