Artificial intelligence (AI) and electrification are driving the world to need more energy. One form of electric power generation that is coming back into vogue is nuclear power. Large companies are making commitments to buy electricity from nuclear power plants, while utilities are extending the contracts for existing facilities and planning to bring new power sources to life in the next few years.
One stock that has benefited from this changing nuclear energy sentiment is NuScale Power Corporation (SMR 0.08%). The start-up is working on small modular reactor technology to license to third parties, hopefully to democratize the technology. Shares of the stock are up 250% in the last year, beating the broad market averages. But is it a buy right now?
Betting on new nuclear energy developments
Small modular reactors are almost self-explanatory. Unlike the traditional large nuclear power plants, these are smaller systems that can (theoretically) be made more efficiently by combining a bunch together or using one system for a small energy need. Using similar technology to traditional power plants, NuScale Power wants to help utilities improve on the capital intensity a nuclear power plant takes to build, which can be a daunting proposition.
So far, it has not built any actual reactors, but it is the first and only company to get approval from the Nuclear Regulatory Commission (NRC) for a small modular design. This occurred in 2023, with a recent approval happening for the same design but just at a different electricity output. The company does not have any customer orders yet, but management believes one will arrive by the end of 2025, given that it is fully approved with its designs. It is also studying an old coal power plant in Romania to see about the feasibility of turning it into a nuclear power facility.
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Canceled projects, delayed timelines
There’s a lot of excitement about NuScale Power right now. Spending on energy is well over $1 trillion every year just in the United States. If NuScale Power can commercialize a breakthrough technology in electricity generation with its small modular reactors, there could be enormous revenue potential.
The problem is, no major customers have committed to a project yet. It used to have a project planned with a Utah utility that started in 2015. However, due to major cost overruns and delayed timelines, the utility canceled the project in 2023. This is not a good sign for the viability of small modular reactors. Companies that design legacy nuclear power systems with proven viability still struggle to find utilities willing to invest in nuclear energy projects. A totally unproven technology is going to be a hard ask for utilities and their shareholders to risk.
SMR Revenue (TTM) data by YCharts.
Is NuScale Power stock a buy?
Today, after going up so much in the past year, NuScale Power stock trades at a market cap of $11 billion. Even though it generates a bit of revenue from the study in Romania, the company can generally be considered a pre-revenue start-up with no product ever sold to customers. It has revenue of $49 million and $98 million in negative free cash flow over the last 12 months.
The company is consistently raising money from capital markets, too. Its shares outstanding keep climbing as it has to raise money to stem its major cash burn. Rising shares outstanding dilutes shareholders, which will be a headwind to long-term returns. It is unclear whether the company will have a viable project contract signed anytime soon, and even if a project is signed, it takes many years for a nuclear power plant to get built, modular or not.
Even if a project gets planned, the stock is already pricing in this growth. At a market cap of $11 billion, the company needs to eventually be generating billions of dollars in revenue in order to make an adequate return for shareholders. Add it all up, and NuScale Power stock looks like a highly risky stock that investors should keep out of their portfolios right now.
