Wall Street has a tendency to swing between being overly optimistic about an investment idea and overly pessimistic. The shift can be dramatic and swift, and the recent 55% or so price decline in NuScale Power (SMR +4.98%) is just one of many examples. Is the massive drawdown in NuScale Power's stock an opportunity or a warning? Here's what you need to know.
The smartest investors understand Mr. Market
Mr. Market was the invention of Benjamin Graham, one of the investors who helped train Warren Buffett. According to Graham, as an investor, Mr. Market is your business partner. Some days, Mr. Market is exuberant and will pay almost any price for half of the business you share. Other days, Mr. Market is despondent and will sell you his share of the business at a bargain price.
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Most days, Mr. Market falls somewhere between the two extremes. However, as an investor, it is your job to understand Mr. Market's mood and take advantage of it when you can. Essentially, Graham was laying the early groundwork for what later became known as behavioral finance. There are actually two pieces to consider in this story, however, and they will help you decide whether NuScale Power is the smartest investment you can make right now.
Be careful with your own emotions
The first part of NuScale Power that you need to understand is the company. It is a money-losing start-up attempting to build a business around a new and untested technology. Only the most aggressive investors should even be considering such an investment. For a risk-averse investor, it would likely be a mistake to own NuScale Power at this point in its existence.
That said, NuScale Power has an attractive story. The new technology the company is looking to introduce is small-scale modular nuclear reactors. Such reactors, if ever built, would be a big step forward for nuclear power. They would be constructed in a factory, with the goal of making them cheaper and quicker to produce. Their size would make them easier to place where needed, and ideally, they would be safer than traditional site-build reactors.
If NuScale Power can build the business it hopes to, there could be significant opportunities ahead for investors. In fact, the company already has a potential first customer. RoPower, a Romanian utility, is examining a plan for a power plant that would use six NuScale Power reactors. NuScale Power is currently generating revenue by acting as a consultant in RoPower's approval process.
NYSE: SMR
Key Data Points
The big step for NuScale is going to be getting the first sale of its small-scale modular nuclear reactors over the finish line. The problem is that this isn't expected to happen until late 2026 or early 2027. Even then, a final sale is still contingent on RoPower getting the necessary financing. The big issue here, however, is that at the start of 2025, NuScale was telling investors that a final decision on the RoPower transaction was expected in early 2026.
Delays in large capital investment projects aren't unusual, so the change in timing isn't shocking. The problem is that NuScale's future depends heavily on winning this contract. It has other business relationships it is working on, but RoPower highlights the risk of an investment here quite well. Notably, as news about NuScale Power, RoPower, and nuclear power fluctuates more broadly, so does the mood of investors.
Smart if you believe NuScale's tech has a future
It is clear that Mr. Market is downbeat on NuScale Power's future, given the over 50% price decline in just three months. That's the second big piece of the puzzle you need to contend with as an investor. On the one hand, that deep drawdown is a sign that conservative investors should make the smart choice to avoid NuScale Power until it has achieved a few more business milestones.
However, for aggressive investors who believe the future will include nuclear power, and specifically small modular nuclear reactors, the same price decline could make now a smart time to buy NuScale Power. It is a contrarian move to invest while Mr. Market is deeply pessimistic. The key is that you must believe NuScale will survive the early stages of its development.
There is no way to know for certain what will happen right now, which probably means that only the most aggressive investors should consider NuScale Power today.
