NuScale Is Impossible to Ignore Right Now. Here's What to Do With It.

NuScale (NYSE: SMR), a producer of small modular reactors (SMRs), went public through a merger with a special purpose acquisition company (SPAC) in May 2022. Its stock opened at $10.70 per share, set a record high of $53.43 last October, but now trades at about $11.

NuScale is volatile because it's a divisive stock. The bulls claim that its SMRs, which are smaller than conventional nuclear reactors, will reshape the nuclear energy market and address the soaring energy needs of the cloud, AI, and industrial automation markets. The bears claim it will struggle to grow its business amid intense competition and macro headwinds. Let's see which argument makes more sense -- and if it's the right time to buy or sell this nuclear stock.

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What are NuScale's catalysts?

NuScale's SMRs, which can be installed in vessels that are only 65 feet tall and 9 feet wide, can generate up to 77 MWe. It prefabricates these reactors, and they're assembled on site to reduce the time, labor, and costs of constructing a nuclear power plant.

On their own, these SMRs are less powerful than conventional nuclear power plants, which typically generate more than 1,000 MWe. But they can be combined with additional SMRs to construct larger plants in remote areas that aren't well-suited for conventional nuclear plants.

NuScale has been working with Fluor (NYSE: FLR) to combine six of its 77 MWe SMRs to build a 462 MWe plant for Romania's RoPower. Most of its revenue comes from its front-end engineering and design (FEED) studies for that project. It's also working with the Tennessee Valley Authority (TVA) to deploy up to six gigawatts of its SMR capacity across seven states.

The bulls believe once NuScale deploys those reactors, its revenue will skyrocket, economies of scale will dilute its expenses, and it will narrow its losses. The soaring demand for nuclear power will drive more countries to deploy those SMRs. However, the bears will point out that NuScale probably won't activate any of those reactors until the early 2030s.

Is it the right time to buy or sell NuScale's stock?

From 2025 to 2028, analysts expect NuScale's revenue -- which will mainly come from its FEED studies, licensing deals, and consulting work -- to rise from $31.5 million in 2025 to $310.7 million in 2028. But with a market cap of $3.4 billion, it already trades at 11 times its 2028 sales. It will also remain unprofitable for the foreseeable future.

That's probably why Fluor, which owned over half of NuScale's shares before its market debut, recently liquidated its remaining holdings. Its insiders are also still net sellers.

NuScale could have a bright future, but it's still a highly speculative stock. If you believe it will successfully deploy its SMRs in the 2030s and disrupt conventional nuclear reactors, it could be smart to nibble on the stock as the bulls look the other way. However, you should also brace for a lot of volatility -- since it doesn't look cheap relative to its near-term growth.

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