We are in the midst of a nuclear energy renaissance. Technology players across the board are making commitments to restart nuclear power plants or pay for electricity from future facilities. Why the change in tone since recent decades, when nuclear power was stuck in the mud? Two words: artificial intelligence (AI). The new software tools require enormous amounts of computer power to train and operate, leading to increased demand for electricity in the United States.
Investors have taken this story and quickly started working on it. There has been one beneficiary NuScale Power Corporation (NYSE: SMR)a disruptor in the nuclear power space that builds small modular reactors (SMRs, hence the stock’s ticker symbol). The shares are up more than 700% in 2024, making it one of the best performing stocks of the year. Is the stock a buy, sell or hold today?
If you look at the numbers, the answer is clear.
The potential disruption of a small modular reactor (SMR) is in the name. Traditional nuclear power plants are expensive and require enormous installations. While these existing solutions generate constant energy, the cost and time spent building these plants makes them virtually impossible for all but the largest entities. Very few companies, utilities or governments have the capital or time horizon to make this happen.
SMRs may be able to solve this problem. First, these new designs are smaller and cheaper to build. Second, they are modular, meaning they can be built on a factory line to achieve economies of scale in construction costs (traditional reactors are custom-built from scratch). The fission technology is the same; it just comes to market with a completely different business model. NuScale Power is pursuing this with its SMR products and hopes to build small nuclear power facilities around the world. Current projects will start in Europe, the United States and East Asia.
The idea around SMRs makes sense. Who wouldn’t want smaller and cheaper nuclear power? Major tech players investing in AI facilities are committing to spending on nuclear power, which is likely why NuScale Power shares have soared higher in 2024.
However, it will be many years before any of NuScale Power’s facilities will be operational. The first facilities are expected to open around the end of this decade. Utility executives love it NextEraCEO John Ketchum believes SMRs won’t be a meaningful part of the industry until the late 2030s. That’s a long time for NuScale Power shareholders. NuScale isn’t the only player in this space either, with bigger players like GE Vernova compete and with a longer history of actually building innovative technology products.
A bullish investor might argue that the incoming presidential administration will get rid of regulations that extend nuclear energy development. There are good arguments that nuclear energy is over-regulated, which hinders the development of energy solutions that could improve society. Regardless of whether you agree that nuclear energy should be deregulated, it’s hard to take a chance on the political whims of the US government. I certainly have no idea how the regulatory issue will play out for the likes of NuScale Power and other SMR players in the coming years.
SMRs are a promising innovation in the field of nuclear energy. I hope that companies like NuScale Power can revive the nuclear energy market in the United States.
This doesn’t mean NuScale Power stock is a buy. NuScale Power generated approximately $7 million in revenue over the past twelve months. It has a market capitalization of $6.6 billion. It’s essentially a pre-revenue company valued at $6.6 billion — one whose first project won’t be ready for nearly five years.
NuScale Power is burning a lot of money: $155 million in the last twelve months, to be exact. At the end of last quarter, the company still had $161.7 million in cash and equivalents on its balance sheet, or about one year of runway remaining. Management will have to raise money to keep this company going.
Also consider the pessimistic views of NextEra’s CEO. It could take another decade for NuScale Power to generate profits, if ever.
Even if NuScale Power is successful in bringing SMR products to market, the stock will likely do poorly for investors who buy today. Sell NuScale Power stock after this recent 700% run.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
NuScale Power Stocks: Buy, Sell, or Hold? was originally published by The Motley Fool
