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The investment thesis for NuScale Power (NYSE: SMR) is surprisingly simple. The AI industry is growing rapidly. Future demand growth for AI technologies, however, relies on getting additional power generation capacity online. Specializing in small modular nuclear reactors, or SMRs, NuScale has the potential to meet surging energy demand with scalable, reliable, and low-carbon power.
There's just one problem: NuScale has never successfully commercialized any of its SMR designs. And in the past, major customers have canceled as cost estimates rose.
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With a valuation under $3 billion and an early-stage contract for what would become the world's largest SMR system, NuScale stock offers plenty of upside for risk-tolerant investors. But I'd consider waiting for more clarity regarding one catalyst in particular.
NuScale stock has been hammered in recent trading sessions as enthusiasm for the AI sector has waned. But the biggest reason shares are down so sharply this year is a reduction in market confidence that the company's promising customer pipeline will convert into revenue-generating projects.
Right now, the most important project in NuScale's pipeline is a 6 GW system for a major utility in the eastern U.S. The biggest remaining issue is that the utility in question hasn't committed financially to the project. The current agreement is largely nonbinding.
NuScale's CFO commented earlier this year that a binding power purchase agreement could be signed by the end of 2026. If signed, the deal would provide massive validation to NuScale's business model as well as ease long-term capital concerns.
On last week's conference call, management stressed that discussions were ongoing, ceding that a firm agreement has taken longer than expected to close. While waiting for more clarity could mean losing maximum upside potential, firm commitments for NuScale's biggest project are so important to the stock's long-term future that I wouldn't mind waiting until a more specific timeline is disclosed.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Here's the 1 Thing I'd Wait to See Before Buying NuScale Stock was originally published by The Motley Fool
