Artificial intelligence (AI) is a massively transformative technology, but powering these algorithms requires a substantial amount of energy. According to Goldman Sachs, global power demand from data centers is expected to increase by as much as 165% by the end of the decade.
With energy demand expected to surge and a growing desire for scalable, carbon-free solutions, nuclear energy is re-emerging as an attractive option. The U.S. government has committed billions to revitalizing its nuclear infrastructure, from funding small modular reactors (SMRs) to streamlining regulatory pathways in pursuit of energy independence and climate resilience.
NuScale Power (SMR +10.87%) is one company developing this SMR technology and the only one to have an approved design in the U.S. today. It could play a key role in powering tomorrow's algorithms, but achieving scalable commercial operations will take several years. If you're considering investing in NuScale, here's what to watch for from here.
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How NuScale can upgrade independent energy generation
At the core of the business is the NuScale Power Module, a small modular reactor that can generate 77 megawatts of electricity (MWe) per module. The technology aims to deliver scalable, cost-effective, reliable power that is also carbon-free.
The simple design of its technology eliminates the need for reactor coolant circulating pumps, large-bore piping, and other complex components typically found in conventional large-scale nuclear reactors, which, in turn, improves safety and reduces capital and operational costs.
What makes it appealing to data center operators, industrial facilities, and other prospective customers is that its modular design can scale from one to 12 modules in a single installation, providing up to 924 MWe. This can also allow customers to start with a smaller initial investment and increase their capacity over time.
NuScale's first-mover advantage
NuScale enjoys a first-mover advantage, as it's the first and only company to receive Standard Design Approval from the U.S. Nuclear Regulatory Commission for its small modular reactor technology.
The company had received certification for its 50 MWe module a few years ago and recently received its certification for its 77 MWe design. Getting this regulatory head start could be a considerable advantage for NuScale in an industry where approvals can take years.
NYSE: SMR
Key Data Points
NuScale is well-positioned to meet the accelerating demand for energy across various sectors, particularly from data centers and artificial intelligence (AI) operations that require 24/7 baseload power. Data centers are projected to triple their energy use within the next three years, potentially accounting for 12% of U.S. electricity consumption by 2028.
Notable tech companies, such as Microsoft and Meta Platforms, are planning significant investments in AI-enabled data centers and are actively seeking substantial amounts of new nuclear power.
Why investing in NuScale requires patience
While NuScale could benefit from the resurgence of nuclear energy, investors should consider the potential risks.
For one, cost overruns previously derailed its flagship Carbon Free Power Project (CFPP) with Utah Associated Municipal Power Systems (UAMPS). The project was terminated in 2023 after NuScale faced numerous cost overruns, which had grown to three times the initially agreed-upon cost estimates from 2018. UAMPS pulled the plug on it in 2023.
The termination of the CFPP was a significant setback, as it was NuScale's first major project and highlighted the challenges in converting early-stage agreements into firm, commercially viable deployments.
Another risk is that it will take years for NuScale to achieve commercial viability. NuScale currently has an active project in Romania (RoPower) where it plans to convert a former coal site plan into an SMR power plant. As part of this project, RoPower is considering a six-module plant with a capacity of 462 MWe. NuScale expects the plant to become operational as early as 2029.
The RoPower project is a primary source of NuScale's current cash flow, generating revenue of $34 million in Q4 and an additional $13 million in Q1, primarily through engineering, licensing, and other service fees. The plant lays out the groundwork for commercializing its technology but also illustrates the long time horizon it will take for SMR technology to become operational.
SMR Revenue (Quarterly) data by YCharts.
Is NuScale a buy today?
NuScale Power is an interesting company developing innovative technology that will help meet the growing energy demands of tomorrow's data centers. The stock has benefited from the positive narrative surrounding nuclear energy, rising 373% over the past year. Analysts project $467 million in sales by 2028, which gives NuScale a lofty valuation of 23 times those projected sales three years out.
The company has a first-mover advantage, which makes it an attractive prospect to watch, especially as nuclear energy undergoes a revitalization. However, a long road ahead awaits, and I think investors are better off watching and waiting to see how its story unfolds, given its current valuation.
