We are entering a nuclear energy generation renaissance. Companies and governments around the world are building and restarting nuclear power plants after realizing they are perfect for the growth in electricity demand that is coming from artificial intelligence (AI) and electric cars. It is curious that environmental groups have opposed nuclear energy for decades despite the fact that it produces nearly zero carbon emissions after construction. However, it looks like the world is finally on the same page in regard to the usefulness of this energy type.
Tens of billions are going to be spent on nuclear power in the next few decades, but there are few publicly traded nuclear energy stocks one can buy. One, NuScale Power Corp(NYSE: SMR), plans to disrupt the market with its new small modular reactors (SMRs). Its shares are up close to 500% this year as investors pile into the nuclear energy trade. Should you follow them and buy some shares yourself?
It is important to understand why there is a growing demand for nuclear energy — it’s mainly coming from two areas that require a lot of electricity. First is electric cars. Electric vehicles are now 19% of new automotive sales in the United States, up from basically zero a decade ago. This is a huge transition for the automotive market, which will transition the power source from gasoline to electricity, meaning the sector will eat up more and more electric power generation in the years to come.
The second factor is the growing size of the data center market in the United States. Supercharged by the demand for AI, spending on data centers is growing rapidly and is expected to hit 9.1% of U.S. electricity consumption by 2030. There’s no reason this needs to stop in 2030, either. Large companies that will need this electricity are seeing the writing on the wall and looking for more electricity sources than intermittent wind and solar power. For example, Microsoft and Amazon — the two largest data center providers — are signing long-term deals to help electric utilities build or restart nuclear power plants.
This leads us to NuScale Power. The company is aiming to help alleviate some of the pain points in nuclear power with its SMR technology. Nuclear power plants are typically costly and custom-built, and they take a lot of time to get up and running. SMRs (at least in theory) will be smaller reactors with a repeatable process. This makes them cheaper, scalable, and hopefully quicker to market once all the regulatory approvals come through. If nuclear energy transitions to SMRs and NuScale Power is the leading provider, there will be close to limitless demand for its products.
The problem is, NuScale Power is far from this reality. The company has never sold an SMR and has virtually zero revenue today. Many companies in multiple countries have proposed deals with NuScale, but none are operational and, if they ever get built, they won’t be ready until 2030 or later. That is over five years until NuScale Power is generating any form of revenue, let alone profits.
Given all the upfront costs in research and development, Nuscale is currently burning a lot of cash. Over the last 12 months, its free cash flow was negative $170 million. That is more than the cash it holds on the balance sheet ($130 million). What this means is NuScale is set to run out of money within a year but needs over five years of runway — if not more — before getting its SMRs commercialized. Management is going to need to raise money in the form of stock offerings or debt to bridge the gap between this cash burn and the time when its SMRs finally get sold.
SMR Market Cap Chart
Investors in NuScale Power are thinking all about the upside of SMR technology right now. That is why the stock is up close to 500% in less than 12 months. However, there is a lot of potential downside that they may be forgetting right now, and that is how investors can get in trouble.
For one, it trades at a market cap of $1.7 billion and has zero revenue. Shareholders are likely going to be weighed down by stock offerings or debt, which will need to happen within the next 12 months. This will present a headwind to long-term shareholder returns.
Two, we don’t even know if the SMR technology will work. It isn’t proven, and it is unclear whether utilities want these solutions or the older large nuclear reactors. The idea of SMRs makes sense, but it is only an idea. And ideas don’t generate positive cash flow.
NuScale Power is a pre-revenue business burning a ton of cash that will likely stay pre-revenue through 2030. Even though the stock is soaring, smart investors will stay far away from this risky stock. There are better places to store your money right now.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends NuScale Power and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
