NuScale Power, a company still in its early stages, has witnessed a remarkable surge in its share price in 2024, with gains exceeding 270%. This impressive performance comes despite the company generating a mere $1 million in revenue last quarter. NuScale is making waves in the nuclear power industry with its innovative approach – Small Modular Reactors (SMRs). These reactors, much smaller than traditional ones, offer potential benefits such as faster construction and localized energy generation.
While SMRs hold promise, their track record is limited. One SMR in China took nine years to complete, and another is anticipated to be finished in 2026 after five years of construction. In comparison, the latest large nuclear reactors in the US, VOGTLE 3 and 4, required over a decade to build.
The potential advantages of SMRs are significant. Their compact size allows for construction closer to energy demand, minimizing transmission losses. Additionally, the modular design enables expansion, providing more immediate energy solutions for specific regions. However, the available construction data raises questions about the actual speed advantage of these reactors.
NuScale has received approval from the Nuclear Regulatory Commission (NRC) for its VOYGR-12 power plants, which can house up to 12 of the company’s NuScale Power Modules (NPMs). Each NPM generates 50 megawatts of electricity (MWe), a fraction of the power produced by large reactors like VOGTLE (around 1,215 MWe).
In 2020, NuScale became the first company to achieve Standard Design Approval (SDA) from the NRC for VOYGR-12 plants. This expedited approval process allows for construction to begin without individual approvals for each project, accelerating NuScale’s growth potential. However, the company has faced challenges in bringing its plants online. In late 2023, Utah Associated Municipal Power Systems (UAMPS) terminated its agreement with NuScale to build a plant, which was intended to be NuScale’s first operational facility. The estimated cost of the project escalated from $3 billion to $9.3 billion, leading to UAMPS’s withdrawal.
Despite these setbacks, the future of nuclear energy looks promising. The increasing demand for electricity to power data centers, driven by the rise of artificial intelligence, has made nuclear power an attractive alternative. Data center companies seek clean and reliable energy sources, and nuclear power fits the bill. This presents a major opportunity for NuScale, explaining the surge in its stock price despite its limited revenue.
While the market potential for NuScale is substantial, its current valuation raises concerns. Wall Street analysts, on average, predict a 22% downside potential for the stock, although some analysts are more optimistic. NuScale’s forward price-to-sales (P/S) ratio, which is used as a valuation metric for companies with negative earnings, stands at a staggering 43x. This figure far surpasses the valuations of 98% of publicly traded companies globally.
NuScale’s success hinges on its ability to overcome past implementation hurdles and capitalize on the growing demand for clean energy. However, its high valuation and the inherent uncertainties surrounding the economics of SMRs make it a risky investment. The potential rewards are significant, but the potential for disappointment is equally high.
