Amazon’s Investment in Nuclear Energy Boosts Small Modular Reactor Technology
Amazon’s (NASDAQ: AMZN) foray into nuclear energy signifies a pivotal shift in energy technology. Historically, nuclear energy has been viewed as essential for achieving carbon reduction. Yet, issues like cost, lengthy development times, and safety concerns have hindered wider adoption. However, advancements in Small Modular Reactor (SMR) technology are changing this narrative. SMRs are designed to be smaller, more efficient, and scalable, making them an appealing option for large tech firms. Companies such as NuScale Power Company (NYSE: SMR) stand to benefit from this burgeoning industry.
Major companies, including Amazon, Microsoft (NASDAQ: MSFT), and Google (NASDAQ: GOOGL), are increasingly considering SMRs for their data centers. These facilities utilize the latest in semiconductor and server technology, which consumes significantly more energy than previous iterations. It’s estimated that the energy demand for AI data centers is 1.5 times higher than earlier models, with the number of such centers rapidly increasing. Furthermore, SMRs align with corporate goals for carbon neutrality. They also have the added advantage of supporting the national grid, helping to lower reliance on fossil fuels.
Understanding NuScale Technology and Its Importance
NuScale Technology is the sole developer of the only U.S.-regulated SMR. Its NuScale Power Module (NPM) can generate 77 megawatts of power, a relatively small amount compared to the U.S. energy demands. Nevertheless, the NPM’s scalability is a key asset, with the potential to connect up to 12 reactors through the VOYGR production plant technology. The reactors serve multiple purposes, providing energy and utilizing waste heat for processes such as desalinization and hydrogen production. NuScale collaborates with ENTRA1 to commercialize its products.
Though NuScale has yet to generate significant revenue, it is projected to increase sales by 2025. A recent agreement with Standard Power is an encouraging sign. Standard Power plans to construct two facilities in Pennsylvania and Ohio dedicated to powering data centers. As a private equity firm, Standard Power focuses on data centers and colocation services for industries reliant on high-energy computing, including cryptocurrency mining and AI. The two VOYGR plants will have a combined capacity of 1,848 MWe.
Analyst Support and Challenges Ahead
Analysts are becoming more favorable towards NuScale heading into 2024, which could propel the market positively in the fourth quarter of 2025. Recent analyses initiated by CSLA and Craig Hallum recommend a Moderate Buy/Buy rating. Despite this optimism, the consensus price targets remain around 50% below current valuations, raising concerns about a potential correction as recent price surges exceed expected ranges. Absent revisions, NuScale’s stock may revisit lower levels to synchronize with analysts’ perspectives.
Institutional ownership is gaining momentum, contributing positively to market conditions. However, current ownership only represents 15% of shares, and buying activity slowed as prices increased in 2024. The high short interest is also notable, which is believed to contribute to price volatility. As of late September, over 25% of shares were sold short, suggesting that short sellers may need to adjust their positions following price advancements. Given this situation, analysts anticipate a possible price correction of 15% to 30% before stabilizing at robust support levels.
The Technical Perspective: NuScale Reaches New Heights
NuScale’s share price has shown vigorous movement, soaring over 40% after Amazon’s announcement. The momentum seems poised to carry on, driven by the fervor surrounding Small Modular Reactors and short-covering activities. Notably, the stock has surged past a key resistance level of $16.75, with supportive indicators affirming this upward trajectory. With these indicators resting low in their ranges, there is potential for continued advancement in the coming weeks before a potential plateau occurs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
