NuScale Power (SMR 0.81%) announced a big deal in October 2023. It was the first order for its small-scale nuclear power plants. A total of 24 units are expected to be used to produce nearly 2 gigawatts of power in Ohio and Pennsylvania. That's great, but don't get too excited.
There are still some very big risks to consider when making the buy, sell, or hold decision on this energy stock.
The decision to buy NuScale Power
The story behind NuScale Power is really, really big-picture. The world is trying to shift away from carbon-based energy sources like coal and natural gas. Although the main push right now is in solar and wind, they are intermittent power sources. There is a need for power that can always be counted on, which is known as baseload power. Nuclear can provide that because the units are always working. And, better yet, nuclear power doesn't produce carbon dioxide, so it's just as clean as solar and wind from that standpoint.
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Essentially, the reason to buy NuScale is that you believe strongly that nuclear power will play a pivotal role in the global energy system of the future. Notably, as the company likes to highlight, NuScale is "the only technology provider and producer of SMRs that has obtained U.S. regulatory approval." SMRs are small-scale nuclear power plants and are designed to be lower risk and less expensive than the large nuclear power plants in operation today.
NuScale, in effect, is a dual bet on a nuclear future and small-scale nuclear power plants. Given that the company is bleeding red ink, and will probably do so for longer, it is an aggressive bet.
The decision to hold NuScale Power
If you already own NuScale Power, it probably makes sense to stick around. Presumably, you believe the energy future will include nuclear power. And given the late 2023 contract, NuScale has a line of sight to build the small-scale nuclear power plants it has designed. Selling out now would, seemingly, be giving up just as the story was starting to gain some traction.
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That said, there is still a lot of work to be done. The contract calls for the small-scale nuclear power plants to be "operational" in 2029. That's still a few years away, and a lot of work needs to be done between now and then to get even one of NuScale's plants built. In other words, holding on probably means suffering through more losses and volatility on the stock front.
The decision to sell NuScale Power
NuScale Power's stock price is up nearly 200% over the past six months. The contract win was a clear turning point, with the stock heading generally higher since it was signed. You might be sitting on some material gains if you bought shortly before the deal. in this case, taking a little money off the table might be a good idea from a portfolio management standpoint. In fact, given the large price increase, you could sell enough to recoup your original investment and just let the "house money" ride.
But there's another question here to consider. Maybe you don't own NuScale but are looking at it. In this case, you need to consider the risk/reward balance. Given the elevated risks, you might end up not buying it at all. That's not a bad call for more conservative investors, given that there are still four or five years before the contracted nuclear units are expected to be up and running. And remember, NuScale still hasn't actually built one of its small-scale nuclear power plants. A lot could still go wrong. It might make sense to wait until the company actually proves its technology before jumping aboard.
NuScale is for aggressive investors
Nuclear power is likely to be a very important part of the global energy market in the future. But that doesn't mean NuScale Power will be the company that benefits. It has an interesting, but unproven, technology offering and a contract to build nuclear power plants. But as the company itself notes in the risks section of its 10-K, "We have incurred significant losses since inception, we expect to incur losses in the future, and we may not be able to achieve or maintain profitability." That's not just boilerplate; that's a real warning that investors need to consider before betting that NuScale Power will be a long-term winner.
