Can Oklo and NuScale Power Survive a Stock Market Crash? (Hint: Yes, but It's Complicated)

Experts increasingly agree that nuclear energy presents a compelling long-term opportunity for investors.

Research from Bank of America projects nuclear to be a $10 trillion global opportunity over the next couple of decades. The benefits won't be evenly spread throughout the nuclear sector, however.

The majority of the nuclear renaissance will be dominated by conventional nuclear power plants. Many big tech companies, for instance, are either restarting old nuclear reactors or constructing new facilities. Starting around 2030, however, Bank of America believes a relatively new kind of nuclear energy will begin scaling: small modular reactors, or SMRs. By 2050, up to 20% of the world's nuclear power would come from SMRs.

"Amid surging electricity demand, driven in part by the rise in AI/data centers, nuclear energy offers a potential solution," concludes Bank of America's research. "And new advancements in technology may now make the tipping point in sight for small modular reactors (SMRs) to reshape nuclear energy supply chains over the next decade."

From this perspective, SMR stocks including NuScale Power (NYSE: SMR) and Oklo (NYSE: OKLO) appear like promising investments, especially considering both companies have seen their valuations drop by roughly 50% this year. But as Bank of America's research suggests, mass SMR adoption could still be decades away. With how capital-intensive the industry is, both companies could face serious challenges during a bear market or economic weakness.

Can NuScale and Oklo survive a market crash? The answer is likely yes. But understanding how a sell-off could impact each company is critical before making an investment.

Here's how NuScale and Oklo could suffer during a market crash

SMR adoption is expected to rise globally over the coming decades. Importantly, only two SMR systems are currently in commercial operation. More than 80, however, are in development.

Given this, NuScale and Oklo have yet to successfully commercialize any of their SMR designs, despite both companies having impressive customer pipelines. NuScale may not get its first SMR project online until the 2030s. Oklo may get a system online sooner, but the company isn't even approved by U.S. regulators to begin deployment. Some of Oklo's bigger projects, meanwhile, have a start date of 2030 or later.

Building nuclear power plants, even miniature ones, is capital-intensive. So until Oklo and NuScale actually get a project up and running, investors should expect both companies to continue producing losses. Last quarter, NuScale posted a net loss of roughly $355 million, whereas Oklo lost around $105 million.

Image source: Getty Images.

This is where both Oklo and NuScale could get in trouble during a market downturn. Both companies have impressive technologies chasing lucrative long-term growth runways. But continued losses, coupled with distant revenue streams, force these nuclear developers to rely on capital markets to survive. This summer, NuScale unveiled a $750 million share sale. Weeks later, Oklo announced its own $1 billion share sale.

Share sales dilute shareholders. When equity prices are high, this dilution is less impactful. When stock market prices fall, however, dilution can be onerous.

Given each company's liquidity position, NuScale and Oklo won't be facing severe financial constraints anytime soon. If their share sales are executed as planned, insolvency risk drops even further. That should prove true even during a market correction.

What could happen during a market crash, however, is a heavy amount of shareholder dilution at rock-bottom prices. This is what investors should be worried about during a bear market.

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.