This high-potential speculative nuclear energy stock could see significant upside.
NuScale Powerâs (SMR -1.54%) stock reached a record peak of $51.67 on July 25. This represented an impressive near fivefold increase from its initial price of $10.70 when it went public through a merger with a special purpose acquisition company (SPAC) on May 3, 2022.
Despite a nearly 30% pullback since that high, is NuScale still a stock worth considering? Letâs analyze its business strategy, growth outlook, and valuations.
Image of a nuclear reactor. Source: Getty Images.
What is NuScaleâs Strategy to Transform the Nuclear Energy Sector?
NuScale specializes in small modular reactors (SMRs) that can fit into containers measuring just 9 feet wide and 65 feet high. These reactors are prefabricated and delivered, allowing for final assembly on-site, which streamlines the construction process and cuts costs compared to traditional nuclear facilities. This innovative approach also enables installation in locations unsuitable for larger reactors.
Importantly, NuScale is the only company to receive Standard Design Approvals from the U.S. Nuclear Regulatory Commission (NRC) for its modular reactors, with the 50-megawatt (MW) design approved in January 2023 and the 77-MW model receiving approval in May.
The 77-MW designs occupy only 1% of the space required by conventional reactors while producing similar power, making them integral to meeting the demands of the burgeoning cloud computing, artificial intelligence (AI), and data center industries.
Initially, NuScale planned a 462-MW facility in Idaho using six of its 77-MW reactors, but rising costs and insufficient customer commitments led to the cancellation of this plan in 2023. In early September, however, the company re-entered the U.S. market with a deal with the Tennessee Valley Authority (TVA) to deploy up to 6,000 megawatts of SMR capacity across its service region, which will mark the largest SMR deployment in U.S. history, although these plants are not expected to become operational until 2032.
Currently, NuScale derives most of its revenue from a subcontracting agreement with Fluor, which is developing a new 462-MW plant utilizing six of NuScaleâs 77-MW reactors for RoPower in Romania. This project is still in the front-end engineering and design (FEED) stage, with a final investment decision expected in 2026.
Can NuScale Justify Its Elevated Valuations?
Although NuScale has yet to build, sell, or deliver any of its reactors, it boasts a market capitalization of $5.23 billion. This corresponds to an astounding 109 times the anticipated revenue of $48 million for 2025, sourced from FEED studies, feasibility evaluations, consulting services, grants, and cost-sharing arrangements with the Department of Energy (DOE). In this timeframe, analysts forecast a reduction in the companyâs annual net losses, shrinking from $137 million to $79 million.
Looking ahead to 2025 through 2027, analysts predict a revenue increase of more than sevenfold to $350 million, coinciding with a reduction of net losses to $52 million. While one should approach these optimistic estimates with caution, potential growth could stem from an uptick in design, licensing, procurement, and initial manufacturing revenue. Key factors will include the decision on the Romanian project and the progress of the TVA agreement in the United States.
In order to facilitate this growth, NuScale may need to secure additional funding, which has already led to more than triple the shares outstanding since going public. This dilution may continue as the company manages stock-based compensation and seeks fresh capital through secondary offerings.
However, if NuScale successfully commercializes its SMRs and scales its operations, the valuation could appear more palatable at 15 times projected sales for 2027. Insider activity also shows a favorable sentiment, with insiders purchasing nearly eight times more shares than they sold in the last yearâindicating confidence in meeting their ambitious objectives.
While NuScale may not be suitable for conservative investors, it presents an intriguing opportunity as its shares currently trade below their peak. Although it carries the risk of significant losses in a market downturn, thereâs also the potential for substantial returns if it successfully commercializes its technology and transforms the nuclear energy landscape.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
This rewritten article maintains the original HTML structure while providing fresh content. It highlights NuScale Powerâs innovations and potential in the nuclear energy sector, framing it as a speculative investment with significant upside that may appeal to various investors.
