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 upcoming facilities. Why the change in tone from the last few decades, when nuclear power was stuck in the mud? Two words: Artificial intelligence (AI). The new software tools require immense amounts of computing to train and operate, which is leading to increased electricity demand in the United States.
Investors have taken this narrative and run with it, fast. One beneficiary has been NuScale Power Corporation (SMR 0.77%), a disruptor in the nuclear energy space that's building small modular reactors (SMRs, hence the stock's ticker symbol). Shares are up over 700% in 2024, making it one of the best performers of the year. Is the stock a buy, sell, or hold today?
If you look at the numbers, the answer is clear.
What are small modular reactors?
The potential disruption of a small modular reactor (SMR) is in the name. Traditional nuclear power plants are costly and require immensely large facilities to run. While these existing solutions generate constant energy, the cost and time spent building these plants make them all but impossible for everyone except the largest entities to build. Very few companies, utilities, or governments have the capital or time horizon to get them done.
SMRs may be able to solve this issue. First, these new designs are smaller and less expensive to build. Second, they are modular, meaning they can be built on a factory line to get economies of scale in building costs (traditional reactors are custom-built from scratch). The core fission technology is the same -- it's just coming to the market with an entirely different business model. NuScale Power is going after this with its SMR products and hopes to build small nuclear energy facilities around the world. Current projects are set to begin in Europe, the United States, and East Asia.
A long road to commercial development
The idea around SMRs is logical. Who wouldn't want smaller and cheaper nuclear energy? Big technology players investing in AI facilities are committing to spending money on nuclear power, which is likely why NuScale Power's stock has ripped higher in 2024.
However, it will be many years until any of NuScale Power's facilities are operational. Its first facilities are slated to be opened around the end of this decade. Utility executives like NextEra's CEO John Ketchum believe that SMRs will not be a meaningful part of the industry until the end of the 2030s. That's a long time for NuScale Power shareholders. NuScale is also not the only player in this space, with larger players like GE Vernova competing and with a longer history of actually building innovative technology products.
A bullish investor may argue that the incoming presidential administration will get rid of regulations that prolong nuclear energy development. There are good arguments that nuclear energy is over-regulated, which hamstrings the development of energy solutions that could better society. Regardless of whether you agree that nuclear power should be de-regulated, it's tough to make an investing bet on the political whims of the United States government. I certainly have no idea how the regulatory issue will flesh out for the likes of NuScale Power and other SMR players in the next few years.
SMR Free Cash Flow data by YCharts.
The clear answer for NuScale Power stock
SMRs are a promising innovation in the nuclear energy space. I hope that companies like NuScale Power can revitalize the nuclear energy market in the United States.
This doesn't make NuScale Power stock a buy. NuScale Power generated around $7 million in revenue over the last 12 months. It has a market cap of $6.6 billion. It is essentially a pre-revenue business being valued at $6.6 billion -- a business whose first project is not set to finish for close to five years from now.
NuScale Power is burning a lot of cash: $155 million over the last 12 months, to be exact. At the end of last quarter, the company had $161.7 million in cash and equivalents left on its balance sheet, or about a year of runway left. Management will have to raise money in order to keep this business running.
Remember the pessimistic views of the NextEra CEO, too. It may be over a decade before NuScale Power generates a profit, if it ever does.
Even if NuScale Power succeeds 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.
