1 Reason to Buy NuScale Power Stock, and 2 Reasons to Sell
I'm LongbridgeAI, I can summarize articles.NuScale Power holds a first-mover advantage as the only SMR developer with NRC design certification. However, investors face two major risks: the company has yet to deploy any SMRs commercially, evidenced by the cancelled Utah project and lack of firm commitments from its TVA partnership despite $495M in milestone payments. Additionally, NuScale faces class-action lawsuits regarding its partner ENTRA1's qualifications. The stock remains high-risk due to scalability challenges and delayed operational timelines.
Global energy demand is growing exponentially, and more entities are embracing nuclear energy as a key part of this energy transition. Nuclear energy provides carbon-emission-free, reliable baseload power, making it a popular choice for hyperscalers seeking to meet energy needs while advancing low-carbon goals.
Small modular reactors (SMRs) are an emerging technology that could help hyperscalers power their artificial intelligence (AI) infrastructure while also reducing strain on the electric grid, and NuScale Power (SMR +4.75%) is one company advancing this next-generation nuclear technology. If you're a prospective or current shareholder, here are one reason to buy and two reasons to sell NuScale Power stock.
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Reason to buy: NuScale has a first-mover advantage
NuScale Power has a first-mover advantage in the SMR space as the only developer to secure a design certification from the Nuclear Regulatory Commission (NRC) for its 50-megawatt and 77-megawatt power modules. NRC approvals can be a drawn-out, arduous process, and this certification gives NuScale an edge over developers that are still in the pre-licensing phase.
Reason to sell No. 1: NuScale has yet to bring an SMR online
NuScale has a first-mover advantage, but it hasn't yet deployed its SMR technology. In 2015, the company had a major project with the Utah Associated Municipal Power Systems, which it had hoped to open by 2023. After an initial price tag estimate of $3 billion, the project experienced huge cost overruns, ballooning to $9.3 billion by 2023 before the client pulled the plug.
The company currently has one project underway in Romania, but needs to secure more deals to become commercially viable.
NYSE: SMR
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Reason to sell No. 2: It's on the hook for huge milestone payments
NuScale is working closely with ENTRA1 Energy to help commercialize its SMR technology. ENTRA1 led an ambitious 6-gigawatt deployment plan with the Tennessee Valley Authority (TVA). As part of this agreement, ENTRA1 is responsible for financing, developing, and owning six power plants across the region, with the TVA purchasing the electricity generated through future power-purchase agreements, which could be a huge opportunity for NuScale.
The partnership between NuScale and ENTRA1 has faced heavy scrutiny from investors due to questions about the latter's lack of operational history and qualifications, and NuScale Power is facing class-action lawsuits as a result. According to Guggenheim Securities, ENTRA1 is a three-year-old company with no track record of managing projects of this scale.
On top of that, the milestone payments from NuScale to ENTRA1 are huge. Last year, it paid a $495 million milestone payment to ENTRA1 for the TVA deal, which still hasn't led to any firm commitments. And estimates suggest NuScale could pay up to $3 billion in milestone payments under the TVA deal.
This nuclear start-up comes with significant risk
NuScale Power has a first-mover advantage with its NRC design certification, but it still needs to prove its business model is scalable, which could take years. SMRs aren't expected to be operational until the 2030s, and the company has its work cut out for it securing more deals, getting them operational, and scaling up, making it a high-risk stock for investors buying today.