NuScale Power (SMR -10.59%) has been a divisive stock ever since it went public by merging with a special purpose acquisition company in May 2022. The bulls were initially impressed by the disruptive potential of its small modular reactors (SMRs), which can be deployed in areas that aren't well-suited for traditional nuclear reactors. The bears claimed its stock was overvalued and it would struggle to scale up its capital-intensive business.
NuScale's stock opened at $10.70 after it closed its merger, and it rallied as high as $15 during the following four months before sinking to less than $2 earlier this year. But as of this writing, its stock trades above $20. Let's take a closer look at this speculative stock and see where it might be headed during the next 10 years.
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Can NuScale grow into its valuations?
With an enterprise value of $2 billion, NuScale trades at 87 times its projected revenue of $23 million for 2024. That seems like a nosebleed valuation, but the bulls believe it can grow into those shoes as more customers deploy its SMRs.
NuScale's SMRs are installed in vessels with a diameter of just 9 feet (2.7m) and a height of 65 feet (20m). These smaller designs are modular, so they're pre-fabricated, delivered, and assembled on site. That flexibility reduces the costs and deployment time for a working nuclear reactor, and they can be built across a wide range of environments.
NuScale currently produces the only SMRs that have been certified with a Standard Design Approval (SDA) from the U.S. Nuclear Regulatory Commission (NRC). However, that approval only covers the construction of a reactor that can generate 50 megawatts of electricity. For its SMRs to actually be more cost-effective than a coal-fired power plant, its reactor clusters need to generate at least 77 megawatts of electricity. In 2025, NuScale expects the NRC to certify the SDA for its 77 megawatt reactors, which take up roughly 1% of the space of a conventional reactor generating the same power. The bulls believe that approval will help it scale up its business during the next few years.
Yet NuScale suffered some major setbacks during the past two years. In 2023, soaring expenses forced it to cancel its planned construction of six nuclear reactors in Idaho. Earlier this year, it laid off 40% of its workforce -- and those job cuts sparked a Securities and Exchange Commission probe into its employment, severance, and confidentiality agreements.
A prolific short seller, Iceberg Research, also accused NuScale of dressing up its growth potential with "fake" customers and misleading investors regarding the potential NRC certifications for its 77 megawatt reactors. NuScale claimed Iceberg's report was "inaccurate and deceptive" while demonstrating a "limited understanding" of SMRs and the nuclear power industry.
However, it's still roughly doubled its share count since its public debut to raise cash, and its insiders have sold more than nine times as many shares as they bought during the past 12 months. That chilly insider sentiment could limit NuScale's near-term gains. Nearly a fifth of its shares were still being shorted at the end of November.
But pay attention to the longer-term catalysts
NuScale's stock looks expensive and the company is nowhere close to breaking even yet. But according to IDTechEx, the global market for SMRs could still grow at a compound annual growth rate (CAGR) of 30% from 2023 to 2043. If NuScale merely keeps pace with that long-term growth trajectory, its annual revenue could grow from $23 million to $4.5 billion by the final year.
But let's shorten that range to the next 10 years. If NuScale maintains a CAGR of 30% from 2024 to 2034, its projected revenue of $23 million this year could rise to $230 million. If it's still valued as a hypergrowth stock at 20 times sales, it could be worth $4.6 billion by the final year. That would represent a gain of more than 140% from its current price.
However, NuScale might command an even higher valuation if more companies pivot toward nuclear SMR solutions to support their clean energy needs. Amazon, for example, recently unveiled a plan to fund the development for more SMRs to support its transition toward carbon-free energy. To support those green energy efforts, the U.S. Department of Energy recently offered up to $900 million in cost-shared funds for the development of more nuclear SMRs.
Securing some of those funds could help NuScale scale up its business at a much faster rate. NuScale also recently signed a new deal with South Korea's Doosan Enerbility to access a steady supply of SMR components.
Is NuScale the right stock to buy now?
NuScale's stock could certainly head higher during the next 10 years if it maintains its first-mover advantage, gains more NRC certifications, and secures more funding. But there's a lot of optimism baked into its shares at these levels -- so investors should gradually nibble on this volatile stock instead of blindly chasing its recent gains.
