Is NuScale Power Stock a Buy Now?

Key Points

• NuScale’s newest design approval could be a major long-term catalyst.

• But a lot of its future growth is already baked into its valuations.

• Investors should pay attention to its share dilution and insider sales.

• 10 stocks we like better than NuScale Power ›

NuScale Power's (NYSE: SMR) stock has gone through some wild swings since it went public by merging with a special purpose acquisition company (SPAC) on May 3, 2022. The nuclear reactor maker's stock started trading at $10.70 per share, rallied as high as $15 over the following months, but plummeted below $2 in early 2024.

But today, it trades at about $37 -- so a bold $1,000 investment at its all-time lows would be worth more than $18,500 today. So is it too late to buy NuScale's stock after those massive gains? Let's review its business model, the bull case, and the bear case to find out.

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Image source: Getty Images.

What does NuScale do?

NuScale intends to produce small modular reactors (SMRs) for generating nuclear power. Its reactors are designed to be installed in vessels that are just nine feet wide and 65 feet high, and they're pre-fabricated, delivered, and assembled on site. That flexibility, in theory, reduces the costs and deployment time for a working plant, and they can be deployed in areas that aren't ideal for bigger conventional nuclear reactors.

NuScale is the only company that has received Standard Design Approvals (SDAs) from the U.S. Nuclear Regulatory Commission (NRC) for its SMRs so far. Its 50 MWe design was approved in January 2023, and its 77 MWe design was approved this May. Its 77 MWe approval was considered a bright green flag for its future, since those SMRs only take up about 1% of the space of a conventional reactor generating the equivalent power. They're also more cost-effective than its comparable coal-fired plants.

NuScale generates most of its revenue from Romania's RoPower. It serves as a subcontractor for Fluor's (NYSE: FLR) planned construction of a 462 MWe plant which uses six of its 77 MWe reactors. That project, which is still in the front-end engineering and design (FEED) phase, is expected to receive a final investment decision (FID) in 2026. NuScale has not yet secured a project in the U.S. ever since its skyrocketing costs forced it to cancel its plan to build six nuclear reactors in Idaho in 2023.

What's the bull case for NuScale?

The bulls expect the soaring energy needs of the cloud and AI data center markets, fresh government contracts, and the prioritization of deploying SMRs over conventional reactors to significantly boost NuScale's revenue over the next few years.

A favorable FID in Romania would pave the way toward its construction of more plants, and it should return to the U.S. by securing new stateside contracts. It's already holding active discussions with five hyperscale data center operators in the U.S., and that expansion will be supported by the ADVANCE (Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy) Act, which was approved last July; and the Department of Energy's (DOE) recent $900 million deployment of cost-shared funds for the SMR market.

Assuming all of those tailwinds kick in, analysts expect NuScale's revenue to grow at an explosive compound annual growth rate (CAGR) of 112% from $37 million in 2024 to $353 million in 2027. It's also expected to gradually narrow its net losses over the next three years.

What's the bear case against NuScale?

The bears will claim that too much of that future growth is already baked into its stock. When you inclide Fluor's non-traded interset in the company, NuScale has a market cap of $10.6 billion. It's already valued at 28 times its potential sales for 2027. Therefore, any delays, disruptions, or regulatory setbacks could quickly pop its valuations and crush its stock.

Another issue is its ongoing dilution. It's more than tripled its number of outstanding shares since its public debut with a big secondary offering, stock warrant redemptions, and its stock-based compensation, and it should keep issuing new shares for the foreseeable future.

NuScale's insiders also booked a lot of profits as its stock soared. Over the past 12 months, its insiders sold nearly 34 times as many shares as they bought. Its CEO John Hopkins sold $12 million in shares at an average price of about $18.04 this January. That bearish insider sentiment suggests its upside potential could be limited as it struggles to justify its premium valuations.

So is it the right time to buy NuScale's stock?

NuScale is a highly speculative stock, but its early mover's advantage in the nascent SMR market still makes it a promising long-term investment. It's a high-risk, high-reward play which could easily be cut in half before it doubles, but it might be worth nibbling on today before lower interest rates bring back more bulls and drive its valuations even higher. However, investors shouldn't buy NuScale with any cash they need over the next few years or make it a core holding in their portfolios.

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