Better Nuclear Energy Stock: NuScale Power vs. Constellation Energy

The U.S. energy landscape has gone nuclear, literally. Data centers are driving America's electricity needs higher. Last year, President Donald Trump signed executive orders outlining the desire to quadruple the country's nuclear power capacity to 400 gigawatts by 2050.

That makes nuclear energy stocks a hotbed of investor interest. NuScale Power (NYSE: SMR) and Constellation Energy (NASDAQ: CEG) are two very different companies, each offering distinct avenues for investing in the coming nuclear energy boom.

But which is the better choice for your money? Here is what you need to know.

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NuScale Energy and Constellation Energy are two different types of nuclear energy companies

Constellation Energy is a diversified energy company with 55 gigawatts of capacity across nuclear, gas, geothermal, wind, hydro, and solar. Its services were expanded following its acquisition of Calpine in January. It also proclaims itself the largest U.S. nuclear energy company, with a fleet of reactors totaling just over 22 gigawatts of capacity. These are traditional nuclear reactors, which use controlled nuclear reactions to generate heat that turns steam turbines to produce electricity.

NuScale Power is developing small modular reactors (SMRs) that operate similarly but at a much smaller scale. The benefit of SMRs is that they are potentially faster and cheaper to build, and they can operate in smaller areas that wouldn't be appropriate for a traditional reactor. SMRs are a newer technology, and to date, NuScale Power is the only company to receive regulatory design approval from the U.S. Nuclear Regulatory Commission.

NuScale's upside comes with risks

As a newer company, NuScale has far more room to grow. NuScale trades at a market cap of less than $4 billion today. Meanwhile, Constellation Energy is already one of the world's largest energy companies, with a market cap of $88 billion.

While its size gives it more growth potential, NuScale comes with several risks.

First, the company won't generate meaningful revenue anytime soon. It has contracted to provide six SMR modules for a former coal-burning plant in Romania, which won't likely begin operations before 2033. NuScale will also supply SMR modules for a landmark deal with the Tennessee Valley Authority for up to 6 gigawatts across seven states, but that deal is new and has no public timeline.

Unfortunately, things move at a snail's pace in the nuclear industry, and even these SMRs come with tons of red tape and regulatory hurdles. Second, NuScale is diluting investors as it pays out stock-based compensation and continues to burn money on operations. Management sold 39.3 million shares this year, raising $750 million in gross proceeds.

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While NuScale's market cap is small, the valuation isn't necessarily cheap. Remember, NuScale is years away from commercial activities, and the company may continue diluting investors along the way. The company may ultimately need to become a profitable leader in the nuclear industry to justify the stock's current risks, and that's no sure thing.

Why Constellation Energy wins out as the superior nuclear energy stock

Ultimately, Constellation Energy has a much, much, higher floor.

Since Constellation has already built its nuclear fleet, it's already cleared many of the hurdles involved. Plus, Constellation can revive, upgrade, or expand its existing reactors (both active and inactive), likely faster than it can build new ones. It has struck 20-year deals with Microsoft and Meta Platforms to supply electricity for their data centers, with both deals scheduled to come online by 2028.

Unlike NuScale, Constellation is already an entrenched and profitable business. Analysts expect the company's earnings to grow by an average of 15% annually over the next three to five years.

Last but not least, the stock pays a dividend yielding 0.6%, with plenty of room to grow, thanks to a payout ratio of just 15% of this year's earnings estimates. Management plans to increase the dividend by 10% annually, and at that rate, your dividend income would double every seven years.

All in all, investors should reasonably expect a growing dividend and double-digit annualized total returns from Constellation Energy over the long term. That won't make you rich overnight, but it can over the course of a decade or longer.

While NuScale's early lead in SMR design is appealing, it's hard to stomach the opportunity cost of holding a risky stock like NuScale over a proven leader like Constellation Energy.

Justin Pope has positions in Microsoft. The Motley Fool has positions in and recommends Constellation Energy, Meta Platforms, and Microsoft. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.