As tech companies invest in artificial intelligence (AI), many investors have been targeting stocks that are involved with energy. These types of stocks may benefit from the rising energy needs that come with building data centers and, thus, can potentially lead to significant long-term returns.
Oklo (OKLO +3.59%) is a prime example of that. Despite generating no revenue today, there's the hope that in the future it'll be a key energy company, with its small power plants providing data centers with energy around the clock, in a safe and efficient manner.
The stock has fallen 20% this year as investors may have been put off by its high valuation. But with it being down around 70% from its 52-week high of $193.84, could it be a great time to invest in Oklo right now?
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There are big opportunities for Oklo to tap into
According to analysts from MarketsandMarkets, the global data center power market could be worth $50.5 billion by the end of the decade. That translates into a compounded annual growth rate of 7.5% and highlights the ongoing opportunities stemming from data center growth.
If Oklo's powerhouses prove effective and help address the need for more reliable energy, the business could thrive, generate significant revenue, and potentially have a path to profitability. In the trailing 12 months, the company has incurred net losses totaling $129 million as it has been incurring expenses but has generated no revenue, and it could be multiple years before it generates meaningful top-line numbers.
NYSE: OKLO
Key Data Points
Oklo's stock may be down, but it's not cheap when you consider the risks
Although Oklo's stock is down significantly from its high, that doesn't mean that it's become a good buy today. It's less expensive than it was at its peak, but that simply means its valuation isn't as outlandish as it was back then; by no means is the stock a bargain buy right now.
Power plants take time to build and can be incredibly costly. While Oklo has some exciting long-term opportunities, its margins may remain tight, making it difficult for the company to hit breakeven anytime soon. That's just one risk to consider. Another is whether demand for data centers could slow down, especially as AI becomes more efficient. Expectations are high today, but that could change in the future.
Given all the risks and uncertainty around Oklo's business, the stock is by no means a bargain. It may be a better idea to put the stock on a watch list and hold off on buying it, at least until there's a clearer indication of how strong its financials might be as it scales its operations, as that can help investors get a better idea of how long it may be until it's able to turn a profit. Until then, this will remain a highly risky and speculative energy stock to own.
