Why NuScale Power Stock Tanked 39.5% Last Month

Shares of NuScale Power Corporation (NYSE: SMR) fell 39.5% in December, according to data from S&P Global Market Intelligence. The small modular nuclear reactor (SMR) start-up pulled back last month after a monster run for most of 2024, likely due to a broad pullback for growth and artificial intelligence (AI) stocks in the month. An announcement from competitor GE Vernova may have catalyzed the sell-off as well. Over the last year, NuScale Power stock is up over 800%.

Here's why NuScale Power stock fell in December.

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A healthy correction for a hot sector

Any stock related to nuclear energy was soaring in 2024. Why? Because of the growing demand for electricity from AI companies as they build out huge data centers across the world. Electricity supply is at risk of not keeping up with demand, which has led utilities and AI builders to embrace all forms of energy, nuclear included. Many big technology companies have expressed interest in utilizing nuclear energy in the future, which is leading to a renaissance in the industry.

NuScale Power Corporation is trying to disrupt the nuclear market with its SMR technology. As the name implies, an SMR is a small and modular nuclear reactor, which can mean quicker build times and less upfront spending commitments. While an SMR has never been used before, the idea is that the industry will replace existing solutions with this new technology, leading to huge growth for the sector in the coming decades. Investors in NuScale Power are betting this company is the one for the job, which is why the stock is up so much in the last 12 months and now sporting a market cap of over $6.1 billion.

The stock went on a crazy run in 2024, with this fall in December likely correlated with the pullback in growth stocks last month. However, there is another reason why NuScale Power stock fell last month: GE Vernova. The energy-generation company recently announced plans for a big investment into SMR technology, which caused NuScale Power stock to fall at the beginning of December. GE Vernova has a market cap of close to $100 billion and would be a formidable competitor to NuScale Power in the SMR race.

Are nuclear energy stocks a buy?

Nuclear energy has entered a renaissance era. As long as electricity demand continues to skyrocket, companies will invest in nuclear energy projects.

This doesn't mean NuScale Power stock is guaranteed to do well, though. For one, there are other companies in the nuclear energy space. Two, NuScale Power has a market cap of $6.1 billion and generates close to zero in revenue each quarter. It is burning over $150 million in free cash flow every year. The only reason it can stay in business is to raise money through common stock sales. This will hurt returns for long-term shareholders.

With many years of losses ahead, NuScale Power will keep needing to raise capital, dilute shareholders, and likely destroy shareholder value. Avoid buying the dip on this nuclear energy stock favorite despite its fantastic 2024 performance.

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