Artificial intelligence is already a huge and rapidly growing market. But in the long term, the size of the AI industry will be enormous. Roughly $7 trillion alone is expected to be spent on data center infrastructure over the next few years to support the compute needs of artificial intelligence applications. Several other trillion-dollar markets are expected to form in support of the burgeoning AI industry, spanning everything from software to energy.
Few companies are as well positioned as Oklo Inc. (OKLO +5.52%). A developer of small modular reactors, or SMRs, Oklo hopes to bring this innovative approach to nuclear energy directly to data center operators. Unsurprisingly, the company was initially backed by Sam Altman, the CEO of OpenAI, the company behind ChatGPT. Altman was the Chairman of Oklo for many years, and clearly understands how the company's nuclear technology can help meet the rapidly growing energy needs of the AI and data center industries.
With a market cap of just $10 billion, could Oklo stock be your ticket to 1,000% returns? Let's crunch the numbers.
NYSE: OKLO
Key Data Points
Oklo can produce 1,000% returns if these catalysts arrive on time
A giant opportunity is opening up for nuclear energy in general. Bank of America thinks the upcoming "nuclear renaissance" will be worth around $10 trillion globally. But this opportunity won't just be relegated to SMR technology -- the specific approach that Oklo is pursuing. Conventional nuclear power plants, which are bigger, more complex, and more costly to construct, will take the biggest share of this value. But over time, Bank of America analysts see SMR adoption accelerating, commanding a 15% market share of nuclear spending by 2050.
Image source: Getty Images.
While there is plenty of competition within the SMR industry, Oklo has a legitimate opportunity to command a leading market share. Altman's involvement, though reduced in recent months, gives the company direct access to one of the biggest AI companies in the world. And unlike competitors like NuScale Power (SMR +1.63%), Oklo's go-to market strategy involves locating its power plants directly with data center infrastructure, rather than just feeding into the broader grid. It's no wonder, then, that the company has signed a long list of potential data center customers, whereas NuScale has struggled in this department.
If SMRs command a 15% market share by 2050, as Bank of America predicts, the overall market should be worth several hundred billion dollars globally. Oklo attaining a $100 billion market cap in that environment -- which would imply 1,000% upside from today's prices -- seems very plausible. But there are a few hurdles.
First, Oklo must execute on its current pipeline, bringing its first projects online on time and on budget. Second, the global buildout of data center infrastructure must continue as expected, with growth sustained even during a potential recession. And finally, the company must find a way to survive and scale without diluting shareholders too heavily, which would eat into those potential 1,000% gains.
I'm a fan of Oklo and its business model. SMR technology certainly has a place in the future's energy landscape. But make no mistake -- this is an investment thesis that will take years, or even decades, to fully play out. There's a lot of potential upside, but the holding period may be too onerous for most investors.
