When the idea of small modular nuclear reactors first began getting serious investor attention a little over a year ago, it wasn't clear it would stick. The mania felt like a meme stock moment (and in some ways it was), or a repeat of the short-lived hard seltzer or NFT crazes, both of which came to a screeching halt.
The small modular reactor -- or SMR -- movement isn't going away, though. If anything it's still picking up steam, as more organizations commit real money to their construction. This of course has proven bullish for players like NuScale Power (SMR 1.81%), which may be further along than any other small nuclear reactor manufacturer in terms of deployment readiness.
The question is, can the up-and-coming pure play on nuclear power's future turn a relatively small investment into a seven-figure sum?
Why an SMR?
The idea is simple enough. Massive utility-scale nuclear reactors are costly as well as complicated; they're also not necessarily efficient. It often makes more sense to simply generate electricity right where it's used.
That's what NuScale Power offers. Its US460 power module -- roughly the size of a couple of train cars -- can provide up to 77 megawatts worth of electricity. That's enough to serve about 100,000 homes, or more practically, provide power for desalination plants, hydrogen production facilities, steel forges, data centers, or oil refineries. Better still, one of NuScale's small modular reactors can be built and become operational in about three years on a footprint of only a few acres.
It's not just a mere premise either. NuScale's 77-megawatt reactor design has been approved by the U.S. Nuclear Regulatory Commission -- the first and only SMR yet to win such an approval.
But none are actually up and running yet. No NuScale modular reactor is even being constructed at this time, in fact. The closest thing it's got to commercialization right now is planning a potential partnership in Romania, although earlier this month ENTRA1 Energy announced it selected NuScale's reactor tech to provide power to the Tennessee Valley Authority. Neither agreement is ironclad, though.
Still, it's a start for a nascent technology that can take years just to clear all the necessary regulatory hurdles to build a single facility. Customers must also secure funding for NuScale's reactors, each of which can cost well over $1 billion once installation costs are factored in. That's why NuScale doesn't expect to report meaningful revenue from its own SMRs until 2030 at the earliest.
The long term still seems promising. Some outlooks suggest the SMR market could grow from essentially nothing now to around $20 billion by 2035, with most of this growth taking shape in the latter half of the timeframe -- once the initial logistical and funding issues are tackled by technology's first wave of customers. And they are getting on board. Wood Mackenzie reports the global SMR pipeline grew 42% year over year during the first quarter of this year. This interest is a big reason NuScale shares have performed so well since then.
There's a problem, however, for investors looking at NuScale as an explosive, millionaire-making kind of stock.
NuScale is facing off with a bunch of bigger players
Although the company's never actually built a functioning small modular nuclear reactor, it's put years of design work as well as sheer thought into its design. The U.S. Nuclear Regulatory Commission's approval of the design of the 77-megawatt US460 SMR is also a strong sign of the technology's safety, so functionality isn't the issue.
Rather, the likely stumbling block here is competition. There's a lot of it. Although none of NuScale's competitors are any further along with the development of their small modular reactors and most of them are behind, lacking the necessary regulatory green lights, many of these rivals are bigger and better funded.
Take GE Vernova Hitachi as an example, co-owned by Hitachi and GE Vernova. Its BWRX-300 small modular reactor isn't yet approved in the United States, but it is in Canada, where the construction of one is already planned. It's also worth noting that the aforementioned Tennessee Valley Authority has applied to construct this particular design -- which is well-suited for installation at coal-burning power plants -- at its Clinch River site in Oak Ridge, Tennessee even before the design is approved.
Holtec International's SMR-300 is another promising option. The company intends to build two of modular reactors at the site of an existing but mothballed 800-megawatt conventional nuclear power plant in Covert Township, Michigan by 2030.
Image source: Getty Images.
Westinghouse, X-energy, Kairos Power, and Rolls Royce are just some of the other companies developing their own small modular reactors, most of which have deeper pockets as well as more of an established name than NuScale Power. Not only are they better equipped to fiscally survive the next five years without meaningful revenue, but they will enjoy the advantage of name recognition once the SMR revolution really starts getting traction.
Even if NuScale is able to win a fair share of the small modular nuclear reactor market's foreseeable growth to $20 billion, with a market cap of more than $5 billion right now (with some sort of shareholder dilution or new debt almost a certainty in the meantime), its stock doesn't have a great deal of potential net upside from here. Most of any long-term growth already seems to be factored in, and then some.
Just be realistic about the odds
Never say never, of course. It's always possible NuScale will become the go-to name in the business. It's also possible that forecasts underestimate how much the SMR market will grow. For instance, if all goes well, the International Energy Agency believes there could be on the order of 700 small modular reactors built and running by 2050. In that scenario, NuScale's got a shot at dishing out some decent returns.
Investors can't afford to be merely hopeful or count on luck, though. They must be realistic, deploying their capital in a way that maximizes their reward while minimizing their risk. If you truly need to turn $10,000 worth of seed money into $1 million, there are certainly smarter bets to make than this one.
Indeed, despite the hype right now, NuScale feels a little too much like GoPro, Blue Apron, Quibi, or Groupon did in their infancy. These companies' products or services created a great deal of initial buzz, inflating their corporate valuations as a result. Investors didn't realize until it was too late that their industries were just too small and too competitive to justify those wildly steep valuations.
