We are entering a renaissance in nuclear power generation. Companies and governments around the world are building and restarting nuclear power plants after realizing they are perfect for the growth in electricity demand coming from artificial intelligence (AI) and electric cars. It is curious that environmental groups have opposed nuclear energy for decades, despite the fact that it produces virtually no CO2 emissions after construction. However, it seems that the world is finally on the same page when it comes to the usefulness of this energy type.
Tens of billions will be spent on nuclear energy in the coming decades, but there are few publicly traded nuclear energy stocks to buy. A, NuScale Power Corp(NYSE: SMR)plans to disrupt the market with its new small modular reactors (SMRs). Shares are up nearly 500% this year as investors pile into the nuclear power trade. Should you follow them and buy some shares yourself?
It is important to understand why there is a growing demand for nuclear energy; this mainly comes from two areas that require a lot of electricity. First, there are electric cars. Electric vehicles now account for 19% of new car sales in the United States, up from zero a decade ago. This is a huge transition for the automotive market, which will switch the energy source from gasoline to electricity, meaning the sector will consume more and more electricity generation in the coming years.
The second factor is the growing size of the data center market in the United States. Fueled by demand for AI, data center spending is growing rapidly and is expected to reach 9.1% of US electricity consumption by 2030. There is also no reason why this has to stop in 2030. Large companies that need this electricity see the writing on the wall and are looking for more sources of electricity beyond intermittent wind and solar. For example, Microsoft And Amazon – the two largest data center providers – are signing long-term agreements to help electricity companies build or restart nuclear power plants.
This leads us to NuScale Power. The company wants to help alleviate a number of pain points in the field of nuclear energy with its SMR technology. Nuclear power plants are usually expensive and custom-built, and take a long time to become operational. SMRs will (at least in theory) be smaller reactors with a repeatable process. This makes them cheaper, scalable and hopefully faster to market once all regulatory approvals are granted. If nuclear power transitions to SMRs and NuScale Power is the leading supplier, there will be virtually unlimited demand for its products.
The problem is that NuScale Power is far from this reality. The company has never sold an SMR and today has virtually no sales. Many companies in multiple countries have proposed deals with NuScale, but none are operational and if they are ever built, they won’t be ready until 2030 or later. That’s well over five years before NuScale Power generates any kind of revenue, let alone profit.
Considering all the upfront research and development costs, Nuscale is burning a lot of money right now. Over the past twelve months, free cash flow was negative $170 million. That’s more than the money it has on its balance sheet ($130 million). What this means is that NuScale will run out of money in a year, but will need another five years – if not more – before its SMRs can be brought to market. Management will need to raise money in the form of equity issues or debt to bridge the gap between this cash burn and when the SMRs are finally sold.
Investors in NuScale Power are all thinking about the benefits of SMR technology right now. That’s why the stock is up almost 500% in less than 12 months. However, there are many potential downsides that they may be forgetting at this point, and that is how investors can get into trouble.
First, it trades at a market cap of $1.7 billion and has no revenue. Shareholders are likely to come under pressure through share issues or debt, which should happen within the next twelve months. This will have negative consequences for shareholder returns in the longer term.
Second, we don’t even know if SMR technology will work. It is unproven and it is unclear whether utilities want these solutions or the older large nuclear reactors. The idea of ​​SMRs makes sense, but it’s just an idea. And ideas do not generate positive cash flow.
NuScale Power is a pre-revenue company burning a ton of money that will likely remain pre-revenue until 2030. Even if stocks rise, smart investors will stay away from these risky stocks. There are better places to store your money right now.
Before you buy shares in NuScale Power, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and NuScale Power wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $867,372!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns October 21, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions at Amazon. The Motley Fool holds and recommends positions in Amazon and Microsoft. The Motley Fool recommends NuScale Power and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
Nuclear Power Renaissance: Should You Buy NuScale Power Stock? was originally published by The Motley Fool
