NuScale Power (NYSE: SMR) has certainly kept its investors on their toes since it went public. By merging with a special purpose acquisition company (SPAC) on May 3, 2022, NuScale debuted with its stock priced at $10.70 per share. Over the next four months, the stock climbed to a high of $15.
However, by January 2024, the situation changed dramatically, with NuScale’s stock plunging below $2. Like many other companies that went public via SPACs, it struggled to meet its pre-merger targets and incurred substantial losses. In addition, rising interest rates deflated its once lofty valuations, coinciding with the loss of a significant contract and various regulatory challenges. Surprisingly, NuScale later saw its stock rocket about 1,400%, hitting $30. The question remains: what caused this surge, and is it a good moment to buy, sell, or hold?
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Challenges Faced by NuScale Power
NuScale is the only maker of small modular reactors (SMRs) that has received a Standard Design Approval (SDA) from the U.S. Nuclear Regulatory Commission (NRC). These compact reactors, with a diameter of just 9 feet (2.7m) and height of 65 feet (20m), can fit in areas unsuitable for larger nuclear power plants. The modular design lets the pieces be prefabricated and assembled where needed, which may slash construction costs and time.
Though this plan appears promising, NuScale has encountered setbacks. Its NRC certification currently only permits the construction of a reactor capable of producing 50 megawatts of electricity. For NuScale to be truly competitive and effectively replace coal plants, its reactor clusters must be capable of generating at least 77 megawatts. The company hopes to gain NRC certification for its 77-megawatt reactors, which occupy only 1% of the space of a traditional reactor producing equivalent power, by 2025.
NuScale has faced significant obstacles over the past two years. In 2023, it had to cancel a plan to build six reactors in Idaho by 2030 due to soaring costs. The company also laid off 40% of its workforce at the start of this year, prompting an investigation by the U.S. Securities and Exchange Commission (SEC) into its labor agreements.
Moreover, Iceberg Research, a well-known short seller, has frequently accused NuScale of misleading investors about partnerships with “fake” customers and the timeline for its 77-megawatt reactors’ certification. Additionally, NuScale has increased its share count by over 130% since its public debut to raise funds and compensate stockholders.
Signs of Recovery for NuScale Power
In the past year, NuScale’s prospects have brightened as new opportunities emerged. The company entered a supply agreement with South Korea’s Doosan Enerbility for SMR components. The U.S. Department of Energy (DOE) announced an application process for $900 million in grants to support nuclear SMR development, and Amazon revealed plans to enhance its energy portfolio with SMRs.
The political landscape shifted favorably after Donald Trump’s election victory in November, as he pledged to approve new energy projects, including reactors, from day one of his administration. This has led to greater bipartisan support for nuclear energy than for traditional fossil fuels.
Consequently, expectations are high that NuScale will achieve certification for its 77-megawatt reactors, capture a significant portion of the DOE’s funding, and capitalize on energy demands from major players like Amazon.
Investment Outlook for NuScale Stock
If the positive trends continue as anticipated, analysts predict that NuScale’s revenue could spike from just $22 million in 2024 to $332 million by 2026. However, with a market cap of $3.05 billion, NuScale’s stock currently trades at 139 times this year’s sales, 34 times next year’s revenue, and 9 times projected 2026 sales. Additionally, it is not expected to reach profitability soon, ending its latest quarter with only $162 million in cash and equivalents.
Given these factors, NuScale remains a highly speculative investment that could deplete its cash reserves if certification for its larger reactors is delayed or if additional government funding fails to materialize. For the time being, investors may want to avoid this stock—or consider taking profits if they invested in recent months. While it could be worth monitoring for future opportunities, many investors might find it too risky at present.
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John Mackey, former CEO of Whole Foods Market, which is owned by Amazon, serves on The Motley Fool’s board of directors. Leo Sun holds shares in Amazon. The Motley Fool holds positions in and recommends Amazon. The Motley Fool also recommends NuScale Power. For a complete disclosure policy, please see their site.
The views expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
