Nuclear energy is experiencing a resurgence, according to many leading experts. "After decades of underinvestment, a convergence of generational technological breakthroughs, intensifying geopolitical competition, and the need for clean, dense, reliable power are positioning nuclear energy for a renaissance," analysts from Goldman Sachs conclude.
"But the next nuclear age will look different from the last," the bank warns. "Innovations in fission like small modular reactors (SMRs) are shaping what the revival of traditional nuclear fission could look like."
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Analysts from Morgan Stanley are in agreement. "Nuclear power generation is experiencing a revival driven by ambitious climate goals and technology demands," the firm observes. Like Goldman Sachs, Morgan Stanley sees SMRs as one of the most promising solutions for scaling nuclear energy.
"Innovations in nuclear energy may also contribute to the investment growth picture, and a new U.S. law aimed at encouraging new nuclear technologies while cutting down red tape could help spur activity," Morgan Stanley says. "Small modular reactors (SMRs), for instance, are a fraction of the size of conventional reactors and can be factory assembled and transported, offering scalability and flexibility."
The idea of SMRs -- which are, in essence, simply miniature nuclear power plants -- has been around since the 1940s. Only two SMR systems have ever been successfully commercialized, one in China and another in Russia.
On a per-megawatt basis, SMRs are typically more expensive than conventional power plants. The advantages are quicker construction times, lower upfront investment, and the ability to locate these smaller systems near the infrastructure they will be serving, whether that be an oil drilling facility in Texas, a remote village in Alaska, or a data center in Svalbard.
Due to higher long-term operating costs, SMR adoption has remained limited in recent decades. But the AI industry needs more power fast. So despite only two SMR systems existing worldwide today, more than 80 projects are currently in development. The biggest SMR system in the world is currently being developed by a U.S. company with a market cap that just fell below $4 billion.
When it comes to SMR stocks, my favorite by far is currently NuScale Power (NYSE: SMR). While competition is rising, NuScale is currently the only company in the U.S. cleared by regulators to build an SMR system. Regulatory clearance helped the company's financing partner, ENTRA1, sign a deal with the Tennessee Valley Authority to build a 6-gigawatt system in the eastern U.S. If built, that system would be 30 times bigger than the largest SMR facility in existence today.
Oklo Inc. (NYSE: OKLO), another popular SMR stock, trades at a $40 billion valuation, whereas NuScale's market cap hovers just below $4 billion.
Why the 90% discount? There are several factors. The biggest may be NuScale's customer concentration and its previous failures. In 2023, NuScale's biggest customer canceled its project. At the time, analysts worried that the collapse would signal the end of rising interest in SMRs.
NuScale was handed a lifeline through its deal with the Tennessee Valley Authority, a project that could ultimately be ten times larger than the company's previously canceled deal. But no financial commitments have been finalized yet. A power purchase agreement -- essentially a deal that commits the project partner to buy power from the future facility -- could be finalized by the end of 2026. If that happens, expect NuScale's valuation to rise significantly. There is no doubt, however, that shares should be reserved for risk-tolerant investors truly looking for maximum-upside stocks.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
My Top Nuclear Stock to Buy Right Now (and It's Not Even Close) was originally published by The Motley Fool