NuScale Power (SMR -5.50%) is currently the only nuclear energy company in the U.S. approved by regulators to build a small modular reactor, or SMR. To be sure, competition is on the way. Several companies are working through the nuclear regulatory approval process, including Oklo Inc. (OKLO -6.03%), another pure-play SMR developer.
But NuScale is unique in that it is both cleared by regulators to build an SMR system and it already has several major customers lined up, one of which is looking to build the largest SMR system in the world.
Here's the problem: NuScale investors have been burned before by major customers canceling deals before financial commitments are made. So while NuScale has major customers lined up on paper, there's no guarantee that this deal pipeline will result in meaningful revenue, or profits for that matter.
Image source: Getty Images.
Given this execution uncertainty, NuScale's market cap still hovers around $4 billion despite lucrative long-term growth potential. When this uncertainty is lifted, expect the stock price to react strongly. Fortunately for NuScale investors, much of the company's execution uncertainty could be lifted as soon as this year.
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Time to buy NuScale Power stock?
NuScale's biggest customer in its pipeline is the Tennessee Valley Authority (TVA), a major electric utility in the eastern U.S. The deal is actually being handled mostly by NuScale's financing partner, ENTRA1. But NuScale is the project partner providing the actual reactors.
In total, the TVA SMR system could be as large as 6 gigawatts. For comparison, the largest SMR system in existence today produces just 210 megawatts from two 105 MWe (megawatt electrical) reactor modules.
TVA signed a deal for the project last September. Importantly, nothing in the agreement was binding. In other words, TVA can pull out at any time. This makes the next major catalyst the signing of a power purchase agreement (PPA). PPAs are typically binding agreements that commit a utility to purchase power from a generation facility at a fixed price, often for years or decades. Signing a PPA ensures the facility's builders will be paid for their work, clearing the way for construction to begin.
When might a PPA be signed?
"We're hopeful that TVA can come across the line at some point later this year," NuScale's CFO commented in May, speaking about the potential for a PPA. NuScale expects to move quickly once a deal is finalized. "We're in a mode right now that as soon as these PPAs are finalized, we're ready to move. By move, I mean enter into, start to call a position, start the front-end engineering design, and initiate the OEM contracts or negotiations," NuScale's CEO added in August.
If a PPA is signed, there should be plenty of upside for NuScale stock relative to today's prices. I wouldn't be surprised to see shares surpass their previous 2026 highs of around $20, implying more than 100% in potential upside. That's how heavily the market seems to be pricing in uncertainty surrounding the deal.
Pricing in that much uncertainty is reasonable given NuScale's past failures and the relative immaturity of the SMR sector overall. But a PPA would provide critical momentum to NuScale's struggling stock price, validating its business model and designs in an unprecedented way.
