NuScale Power(NYSE: SMR) has taken its investors on a wild ride since its public debut. The producer of small modular reactors (SMRs) went public by merging with a special purpose acquisition company (SPAC) on May 3, 2022, and its stock started trading at $10.70 per share. It rallied as high as $15 over the following four months.
But by January 2024, NuScale's stock had sunk below $2. Like many other SPAC-backed companies, it lost its luster as it missed its pre-merger targets and racked up steep losses. Rising interest rates also popped its bubbly valuations as it lost a major deal and faced regulatory headwinds. Yet NuScale's stock subsequently rallied about 1,400% and now trades at $30. Let's see why it soared -- and if it's the right time to buy, sell, or hold this volatile stock.
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Why did the bulls retreat from NuScale?
NuScale produces the only SMRs that have been certified with a Standard Design Approval (SDA) from the U.S. Nuclear Regulatory Commission (NRC). These reactors, which are installed in vessels with a diameter of just 9 feet (2.7m) and a height of 65 feet (20m), can be deployed in areas that aren't suited for larger nuclear reactors. NuScale's designs are modular, which means its pieces are pre-fabricated, delivered, and assembled on site.
That approach could significantly reduce the costs and deployment time for a working nuclear reactor. However, NuScale's NRC certification only covers the construction of a reactor that can generate 50 megawatts of electricity. For its SMRs to be more cost-effective and replace coal-fired power plants, NuScale needs its reactor clusters to generate at least 77 megawatts of electricity. It's expecting the NRC to certify the SDA for its 77-megawatt reactors, which will take up about 1% of the space of a conventional reactor generating just as much power, in 2025.
That plan sounds promising, but NuScale has struggled with growing pains over the past two years. In 2023, it canceled a plan to build six nuclear reactors across Idaho through 2030 amid skyrocketing costs. It laid off 40% of its workforce at the beginning of this year, and the U.S. Securities and Exchange Commission (SEC) subsequently launched a probe into its employment, severance, and confidentiality agreements.
A prolific short seller, Iceberg Research, repeatedly accused NuScale of signing deals with "fake" customers and misleading its investors about the certification roadmap for its 77-megawatt reactors. NuScale has also increased its share count by more than 130% since its public debut to raise more funds and cover its stock-based compensation.
Why did the bulls rush back to NuScale?
Over the past year, NuScale's outlook brightened as a few fresh catalysts appeared. It secured a new supply deal with South Korea's Doosan Enerbility for SMR components. The U.S. Department of Energy (DOE) opened up an application process for up to $900 million in cost-shared funds for the development of more nuclear SMRs, and Amazon announced its plans to generate more power with SMRs.
Donald Trump's election victory in November generated even more tailwinds for nuclear stocks, since the President-elect had previously vowed to "approve new drilling, new pipelines, new refineries, new power plants, [and] new reactors" on "day one." Nuclear energy solutions also have more bipartisan support than fossil fuel solutions.
Therefore, NuScale's stock is soaring on the expectations that its 77-megawatt reactors will be certified, it will win a substantial portion of the DOE's $900 million offer, and it will benefit from the soaring energy needs of cloud giants like Amazon.
But is it the right time to buy, sell, or hold NuScale's stock?
Assuming those tailwinds kick in, analysts expect NuScale's revenue to soar from just $22 million in 2024 to $332 million in 2026. But with a market cap of $3.05 billion, NuScale's stock already trades at 139 times this year's sales, 34 times next year's sales, and 9 times its estimated sales for 2026. It also isn't expected to break even anytime soon, and it ended its latest quarter with just $162 million in cash and equivalents.
So for now, NuScale is still a highly speculative stock that could run out of cash if it fails to get its bigger reactors certified or gain more government funding. Therefore, I think investors should avoid its stock (or take some profits if you bought it over the past few months), rather than buying it at its current valuations. It might be worth nibbling on if some of the aforementioned tailwinds kick in, but it's still too risky for most investors.
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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. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
