Prediction: Buying Oklo Today Could Set You Up for Life

Shares of nuclear start-up Oklo (NYSE: OKLO) have fallen more than 20% from their highs, but they're still up more than 550% year to date.

At these prices, the company is valued at about $20 billion -- and it hasn't even produced a working nuclear reactor yet!

Although it's a risky bet, an investment in this speculative company could still set shareholders up for life. Here's how.

Image source: Getty Images.

Oklo is combining parts to make a whole

Oklo is hoping to develop a viable small modular nuclear reactor (SMR) using sodium-cooled fast reactor technology, which differs from the standard water-cooled reactors that are most commonly used today. Oklo's first SMR design, the Aurora Powerhouse, is expected to produce "up to 75 megawatts" of electrical output.

One big reason Oklo could succeed is that each element of its proposed technology has already been successfully tested or deployed in a different setting. There are at least two commercial SMRs in current operation (one in Russia, the other in China). Sodium-cooled fast reactors have been successfully deployed around the world, including the U.S.'s Experimental Breeder Reactor II (EBR-II), which operated from 1965 to 1994, producing 20 megawatts of power. Fast reactors can even be fueled by nuclear waste from other nuclear plants, as the EBR-II also demonstrated. The question is whether all this technology will work in tandem to produce sufficient power output at a viable cost.

In theory, it should work. But in physics, it's not uncommon for complex systems not to work as planned. If Oklo can't get its Aurora Powerhouse to successfully produce power -- or to successfully produce enough power at low enough cost -- shareholders could see their entire investments go up in smoke. That's why Oklo is such a speculative stock and only appropriate for investors with a high risk tolerance.

If the process works, the sky's the limit for Oklo

Even if Oklo's Aurora Powerhouse does work, there will still be plenty of unanswered questions about the company's viability. For example, is the power generation sustainable? Does Oklo have access to enough fuel to begin producing more Aurora Powerhouses at scale? When produced at scale, is the profit margin high enough to justify Oklo's valuation? And most importantly, how soon until investors start to see returns on their investments?

If the numbers work out, it's not far-fetched to say the sky's the limit for Oklo, particularly if it can make good on its recently announced partnership with data infrastructure company Vertiv (NYSE: VRT) to develop a joint cooling system for a data center powered by an on-site Oklo SMR. Both data centers and nuclear power plants require substantial cooling systems, so it makes sense to offer an integrated self-powered system that would allow co-located data centers powered by SMRs to be essentially self-sustaining.

U.S. electricity demand is expected to increase by about 20% to 25% over the next five years, and much of that demand will be driven by the need for data centers. However, data centers that draw significant amounts of power from a municipal electricity grid tend to drive prices up for local residents and businesses, which may not be sustainable over the long term.

But if Oklo can offer a self-powering data center that won't strain a local energy grid and can be built where the need for computing power is greatest, demand could easily skyrocket, since there are no viable alternatives that don't involve a massive footprint (for a solar or wind farm, or traditional nuclear plant) or taxing an already-stressed power grid.

A lifelong investment

Because Oklo intends to maintain ownership of its SMRs and sell the power they generate over the long term, each SMR-powered data center Oklo builds would generate sustainable cash flow for decades. Eventually, a mature Oklo could begin to function more as a standard utility-scale power provider that taps its cash flow to pay a dividend to investors, essentially setting up today's investors for not only price appreciation but a potential future income stream in their retirement.

Remember, though, that this best-case scenario is a long way from fruition. Oklo hasn't even gotten a working prototype of its Aurora Powerhouse up and running yet, much less demonstrated scalability and long-term cost-effectiveness. While an investment in Oklo today could set you up for life, it could also easily get you nothing. Be aware of the risks and don't invest money in Oklo that you can't afford to lose.

John Bromels has positions in Oklo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.