Should You Buy NuScale Power While It’s Under $10?

Energy demand is set to explode over the next few decades, driven by population growth, the development of emerging market economies, and the widespread integration of artificial intelligence. In response to carbon reduction targets, companies are undertaking exciting projects to address growing energy demand.

Small modular reactors (SMRs) are an exciting technological advance in nuclear power generation that could revolutionize the way we use nuclear power. SMRs are flexible and adaptable and could provide power to remote areas, industrial plants or data centers that power artificial intelligence. They also offer potentially lower initial costs and the efficiency of nuclear power and NuScale Power (SMR 12.17%) is a company that develops this technology.

NuScale rose 443% from early March to mid-July, when it peaked at nearly $17 per share, but has since fallen more than 54%. With the stock trading below $10 per share, is now the time to invest in the energy company?

The promise of small modular reactors

Since 2007, NuScale has developed its SMR technology and invested nearly $1.8 billion. What makes SMRs attractive is that they use nuclear power to provide up to 77 megawatts of electricity (MWe). Not only that, but the modular design also allows for a scalable plant that can host up to 12 modules supporting 924 MW of power.

This modular design means that SMRs can be manufactured at the NuScale plant and transported to site for assembly, potentially reducing construction costs and the time required to get a plant up and running.

SMRs are also incredibly flexible. They can provide carbon-free energy in remote areas that lack a grid infrastructure and autonomous power for industrial facilities or data centers. With data center energy consumption expected to grow from 3% of US energy demand to 8% by 2030, SMRs could be a key component in helping companies achieve their goals carbon neutral.

NuScale SMRs generated noise. Last year, Standard Power announced plans to develop two SMR-powered facilities in Ohio and Pennsylvania that will produce 2 gigawatts of clean energy to power nearby data centers.

Image source: Getty Images.

It hasn’t been smooth sailing for NuScale

Last November, the Utah Associated Municipal Power System (UAMPS) terminated its agreement with NuScale for its Zero Carbon Energy Project. First announced in 2015, the project would have involved the construction of 12 reactor modules to generate up to 600 MW and was planned to be operational by 2023.

The termination exposed the high costs of SMR and showed how difficult it could be to get the technology up and running. Initially, the project was estimated to cost around $3 billion. This has increased to $6.1 billion in 2020 and $9.3 billion in 2023 and has just become too expensive for UAMPS. As a result, NuScale’s first planned operational SMR plant went up in smoke and had to take a $50 million charge as a result.

NuScale boasts that it is the only company to have received a standard design approval from the Nuclear Regulatory Commission. However, one thing to note is that this is for its modular 50 MWe reactors and not its current 77 MWe reactors. The company expects this version to be approved by July 31, 2025.

Keep an eye on NuScale’s cash consumption

NuScale Power technology offers exciting potential and could benefit from increased energy demand over the next few years. Its modular design suits small communities, data centers or other industrial customers, making it an interesting investment opportunity.

However, investors should keep in mind that NuScale is a money-losing operation. Over the past three years, the nuclear power company has invested heavily in research and development and is still very early in developing a commercial product. For the past 12 months, NuScale’s net loss is $82 million.

SMR Net Income Data (Quarterly) by YCharts

Management estimates NuScale’s quarterly cash burn rate to be approximately $20 million. The company currently has $130 million in cash and cash equivalents on hand, or just over six-quarters. However, if NuScale continues to lose money, it may have to raise capital through debt or equity, which could further dilute shareholders.

Is NuScale right for you?

While it’s exciting to get customers like Standard Power on board, they remain potential customers and anything could happen, as you can see with the contract with UAMPS.

The company is still far from commercial operations and still has to wait for the approval of the upgraded reactors. Given NuScale’s unpredictable path to profitability, most investors are best off sitting on the sidelines and seeing how things play out before investing in the energy company.