Here's How a Small Bet on This Nuclear Stock Could Pay Off Big

In 2024, analysts at Morgan Stanley went all-in on nuclear energy. "Nuclear power generation is experiencing a revival driven by ambitious climate goals and technology demands," the bank stressed. "From an investment perspective, that could benefit everything from uranium mining and nuclear power generation to physical infrastructure and waste handling."

Morgan Stanley analysts were particularly excited about small modular reactors, or SMRs. "Small modular reactors ... are a fraction of the size of conventional reactors and can be factory assembled and transported, offering scalability and flexibility."

Other experts are also bullish on nuclear energy. Bank of America, for example, released a report earlier this year claiming that "nuclear energy has, in many ways, been recently 'rediscovered' amid surging electricity demand.

Morgan Stanley's report highlighted climate concerns and technology demands as fuel for nuclear's renewed interest. But Bank of America sees nuclear's biggest opportunity as being the solution to artificial intelligence's rapidly rising energy demands.

"Compared with other energy sources," advises Bank of America, "it offers reliable baseload power, a smaller carbon footprint, and a higher energy return on investment."

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Many companies are pursuing the development of SMRs. More than 80 SMR projects are in development globally. Investing solely in the potential of SMRs, however, is more difficult. There are a few pure-play options, but NuScale Power (NYSE: SMR) appears to be the best choice for investors seeking maximum upside in nuclear energy.

Here's why NuScale Power stock has so much upside potential

After a steep correction, NuScale's market cap now hovers around $3 billion. Bank of America values the entire nuclear opportunity at $10 trillion. Side by side, it's not hard to see how much upside is possible for NuScale stock. NuScale is currently the only company in the U.S. with regulatory approval to build an SMR system. And it already has an impressive customer pipeline.

Why, then, are shares valued so cheaply? It all comes down to execution risk.

Only a handful of SMR projects are currently in operation worldwide. And while NuScale is approved to build SMRs in the U.S., it has yet to break ground on any commercial reactor. Several projects in its pipeline have been stalled for years.

NuScale ended last quarter with around $1 billion in liquidity. But it also posted a $690 million operating loss. In short, the company will need to raise more money to survive. New funding will be disproportionately dilutive given the company's struggling stock price.

NuScale's most promising project is its 6 gigawatt system intended for a major utility in the eastern U.S. NuScale expects a positive update on this project by the end of the year, potentially closing a power purchase agreement that will commit the customer to buying energy from the SMR at a predetermined price for years or decades to come. Such a catalyst would be huge news for NuScale. But given past project delays, it's far from a guarantee despite management's optimism.

In total, NuScale's technology has received validation from both regulators and potential customers. But translating that validation into profits has been difficult. With a market cap of $3 billion, NuScale looks particularly enticing for growth investors willing to take on extra risk in exchange for truly massive upside potential. Just don't be surprised if execution difficulties continue to weigh heavily on the stock.

Bank of America is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.