The Case for and Against Buying NuScale Right Now

Advanced nuclear company NuScale Power (NYSE: SMR) is developing small modular reactors (SMRs), which are manufactured in a factory and deployed in multiples.

At its core, NuScale is trying to make nuclear power more practical. Rather than constructing gigawatt-sized nuclear power plants, which can take a decade or more to build, NuScale hopes to sell compact reactors on a shorter timeline, within a reasonable budget. Its reactors can be especially attractive to utility companies that want to replace coal plants with clean energy to meet climate goals.

NuScale stock has slid quite substantially over the last year. Since last July, this nuclear energy stock has lost about 75% of its value. It currently trades at about $10 a share, with a 52-week high of $57.

If the decline has caught your interest, here's the case for and against this SMR technology leader.

The case for NuScale

NuScale's strength is its first-mover advantage. It remains the only nuclear energy company in the U.S. with an NRC-certified SMR design. It has a huge head start on its competitors like Oklo, many of which are still undergoing NRC scrutiny for their small and micro reactors' hopes and dreams.

The company achieved NRC approval at the right moment. Unprecedented energy demands from artificial intelligence (AI) data centers have forced many utilities to consider alternative ways to provide continuous baseload power. NuScale's recent partnership with ENTRA1 -- a private power production company -- aimed at helping NuScale connect with tech clients in this very lucrative line of business.

Image source: Getty Images.

Finally, there's governmental support in the U.S. for nuclear energy. The Trump administration has made expanding nuclear power a priority -- aiming to quadruple nuclear capacity by 2050 -- with SMRs expected to play a meaningful role in that expansion. Transportation Secretary Sean P. Duffy even recently launched an initiative to develop SMRs for commercial shipping, a first step toward bringing nuclear into the maritime industry.

Support for NuScale is strong, as are the tailwinds. So why has the stock slumped?

The case against NuScale

Most investors familiar with NuScale are probably jaded by the reasons given. They are, indeed, the same reasons typically given in support of NuScale, which is another way of saying that NuScale's situation hasn't changed that much.

The biggest issue with NuScale stock is the lack of a first firm sale. Despite being the first company to get an SMR design certified by the NRC, it hasn't built a reactor for commercial use. Demand for its SMRs, in fact, hasn't been overwhelmingly strong, with only a handful of projects advancing past the talking phase.

Without proof of concept, it's hard to gauge NuScale's future economics. Nuclear power plants are expensive and take time to build; if NuScale's SMRs aren't significantly more advantageous than traditional nuclear in either respect, meaningfully growing revenue will be extremely challenging for this company.

At this point, NuScale needs time to prove that its concept works; nuclear energy isn't the kind of technology you want to rush. The stock is volatile -- with a beta of 2.22, it's twice as volatile as the broader market -- and will likely face ongoing turbulence as it works out its business.

Risk-averse investors will likely want to sit this one out, though those with a greater appetite for risk should at least keep NuScale on the watch list.

Steven Porrello has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.