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Nuclear technology company Oklo (NYSE:OKLO) offers investors an intriguing growth opportunity: investing in a small stock that has tremendous upside due to its potential role in the artificial intelligence (AI) build-out, rather than investing in a behemoth such as Nvidia. That's because Oklo's powerhouses could potentially be key in providing data centers with round-the-clock energy.
The risk, however, is that it may still be years before it's generating significant revenue. Plus, rising interest rates make the cost of borrowing more challenging.
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This year, the stock has declined by more than 60%, now trading below $30. At this reduced price tag, does it make sense to buy Oklo's stock for the long haul?
There are some major risks with Oklo's business, as it's generating a fairly modest amount of revenue in relation to its expenses, and that's not likely to change anytime soon. It reported just $1.9 million in revenue for the September quarter, while its operating expenses totaled $84.3 million.
The reality is that as the business scales and builds more reactors, its costs are only going to rise. This creates the inevitable risk that frequent cash offerings and dilution will be the norm for investors. During the past nine months, the company has burned through $111 million from its day-to-day operations, which is more than double the roughly $49 million it used up during the same period last year.
Oklo has been raising billions from stock offerings this year, and that's likely to continue for the foreseeable future. Meanwhile, so much of the company's growth potential revolves around AI data centers, and if there are signs of a slowdown in the AI build-out, the stock could fall further; with a market cap of $5.3 billion, its valuation remains fairly high for a business at such an early stage of its growth.
The hype around AI has fueled Oklo's massive rally in recent years. While it's down big this year, that's largely due to its inflated valuation. At its peak, the stock had a market cap of more than $27 billion.
For AI investors who are willing to take on the risk, there could be a lot of room for Oklo's stock to surge higher, but it's a long-term play that will require a great deal of patience and a high tolerance for risk.
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Should You Buy Oklo Stock While It's Under $30? was originally published by The Motley Fool
