Shares of NuScale Power (SMR -3.48%) fell Thursday, finishing the day down 10.5%. The retreat came as the S&P 500 (^GSPC -0.32%) and the Nasdaq Composite (^IXIC -0.14%) gained 0.8% and 1%, respectively.
The small modular reactor (SMR) developer is giving back some of yesterday's gains, which followed news that the Tennessee Valley Authority (TVA) signed an agreement to develop a massive 6-gigawatt nuclear project using NuScale's technology.
NuScale lands a massive win -- on paper
The TVA agreement represents what could become the largest small modular reactor assembly in the United States, with enough capacity to power 4.5 million homes or 60 data centers once operational. The project will be deployed through ENTRA1 Energy. It's a massive deal and a strong validation of NuScale's nuclear technology.
Image source: Getty Images.
Valuation concerns remain for NuScale stock
The announcement was light on details, and after the initial excitement cooled, the stock fell hard today as investors weighed the potential of the deal with questions of timelines and cost. NuScale is still developing the technology, as are its SMR competitors like Oklo, which means the stock is inherently risky, especially considering its valuation. The company has minimal revenue and operates in the red, yet its market capitalization is more than $10 billion. That is pricing in a lot of future success.
The opportunity in SMR technology is big -- there is no denying that -- but there are a lot of unknowns for a company of this size. Granted, NuScale's balance sheet is relatively healthy, with minimal debt and cash on hand to cover what it is burning for years. But the capital requirements could grow exponentially when and if it successfully develops its technology and starts deploying reactors. I would be cautious until the stock returns to a more reasonable level.
