NuScale Power has had a huge price run, but don’t get so caught up in the price move that you overlook the still-material risks.
NuScale Power (SMR 0.23%) has a great story for investors and, at least right now, Wall Street is eating that story up. The stock has gained well more than 100% so far in 2024. Clearly investors are excited about this nuclear power company’s prospects, but don’t buy the stock just yet. There are some issues to consider first.
NuScale Power’s good news
The stock price of a company usually doesn’t double in less than six months for no reason at all. And NuScale Power does, in fact, have some good news. In late 2023 it signed an agreement to supply 24 small-scale nuclear power plants to power data centers in Ohio and Pennsylvania. That’s the first order the company has received.
Nuclear power is a great option for data centers, too, because it is a base load power source. Unlike solar and wind power, which are intermittent, a nuclear power plant is always producing energy. Given the huge energy needs of data centers, pairing them with nuclear energy seems like a no-brainer as artificial intelligence (AI) drives increasing demand for data centers.
Meanwhile, NuScale’s units are designed very differently from the current large-scale power plants people are used to hearing about. NuScale’s variant is meant to be smaller, safer, and easier to produce. All three of which makes it more attractive than what exists today. And, notably, NuScale likes to note that it is “the only technology provider and producer of SMRs [small modular reactors] that has obtained U.S. regulatory approval.”
There’s no question that NuScale Power has a great story to tell investors today. And that’s likely why the stock has risen so far so fast.
SMR data by YCharts
The fly in NuScale’s ointment
Before you join the Wall Street bandwagon with this nuclear power stock, step back and consider some additional facts.
For example, although NuScale has a deal to build 24 of its small-scale nuclear power plants, it has yet to actually produce a single unit. Right now, all it has are paper plans. Although NuScale’s power plants are designed to be small and easier to produce than large nuclear power plants, that doesn’t mean they are easy to produce. It is still a complex process, and a lot could go wrong.
Meanwhile, the data center deal isn’t expected to be completed until 2029. Given that time frame and the fact that NuScale has yet to build a single unit, it seems likely that the company will continue to lose money for a while longer. The company makes exactly that warning is the “risks” section of its 10-K report.
SMR Cash and Equivalents (Quarterly) data by YCharts
And then there’s the balance sheet, which has seen the cash balance decline by more than 50% since mid 2022. That’s a huge cash burn in a short period of time for a company that isn’t expecting to be profitable until some distant point in the future.
NuScale: Not a bad company, but a risky one
Investing is about balancing risk and reward. NuScale Power isn’t a bad company. In fact, it has an interesting technology that could turn out to be very attractive. But more conservative investors should still tread with caution. Getting from where NuScale is today to a sustainably profitable company isn’t a given, and it won’t be easy. The rapid stock advance appears to be pricing in a material amount of good news. Simply put, a lot could go wrong along the way and only more aggressive investors should be looking at NuScale Power.