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Category: Utilities

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The Nuclear Comeback Needs Careful Consideration

Small Modular Reactors

10/16/2024

Small Modular Reactors, (SMR) companies are going to be high-risk / high-reward stocks with such large jumps (40% in a day); and on Cloud Service Providers’ involvement, the risks got even higher. Besides Oklo and NuScale, I’ve included a couple of other much larger nuclear power and clean energy companies that could ride the boom if it materializes.

Oklo Inc (OKLO) $16.55  is up 42% today on the Amazon announcement!! 

It’s a Sam Altman (OpenAI) back SPAC, a nuclear power company or, more precisely, a fast-fission clean power technology and nuclear fuel recycling company. MIT graduates Jacob DeWitte and Caroline Cochran co-founded Oklo in 2013.

The growing demand for electricity globally and renewable energy policies will favor Oklo, but it would be prudent to see more progress before making an investment, these are really early stage companies in highly regulated environments.

The Nuclear Comeback:

Nuclear power provides ~9% of total and ~25% of low-carbon electricity globally, making it a major and clean energy source. 22 countries (including the US, the UK, France, Japan, and other influential countries) agreed and declared they would work towards tripling nuclear energy capacity by 2050 during the last COP28 meeting on December 2023, recognizing the key role of nuclear power in the green transition and the global net-zero emissions goal. Hence, we could experience a nuclear power boom, after decades of stalling. The ADVANCE Act also points in that direction regarding the US. Nuclear power rejuvenation could be unfolded from existing and new players in the coming years. Nuclear fission advanced technologies and small modular reactors will play an important role in achieving this goal. Commercialization of nuclear fusion is also expected to debut by the end of the decade.

For the coming quarters/years, the company is expected to burn cash ($40M-$50M 2024 expected operating loss) while revenue should start flowing in 2027 and profits even later. 

Key Risks

  • Regulatory, environmental, political, and application-related issues will cause delays.
  • Additional funding will be needed along the way, and Oklo will dilute shareholders or issue debt.
  • Oklo is an emerging growth, pre-production, unprofitable company; this could result in stock price volatility.

If you have some funds set aside for speculative/high-risk investment, you could allocate a small amount towards it, though  I would wait for a pullback.

NuScale Power Corporation (SMR)

  • NuScale – at $19, just like competitor OKLO is up 40% in a week and 220% in the past year!
  • A baby – it is a pre-commercialisation technology company designing a Small Modular Nuclear reactor, which could become very succesful.
  • It has US government support, and strategic partnerships, but faces intense competition from larger, more established players like Vistra, and better-funded startups with next-generation nuclear technology, like OKLO.
  • A very risky play at this stage

Positives: 

Samsung’s subsidiary, Korea’s No.1 private utility company, will lead the construction and engineering of the new plant.

Negatives: 

Competition is intense; they are up against established large-scale companies like Westinghouse Electric, which built a nuclear reactor over 60 years ago, TerraPower formed by Bill Gates, and BWX Technologies (BWXT) is another major competitor in the US, a second company with more than 100 years of operation and established nuclear divisions.

The Short Seller Report

NuScale was hit by a short seller report update from Iceberg Research last month, claiming that it has no serious customers. Given the charges, it would make sense for the dust to settle, before investing.

Besides the valuation is extremely high. This needs further analysis and investigation.

Categories
AI Alternative Energy Stocks Utilities

Vistra (VST)-A Strong Utility With A Big Focus On Clean energy.

Clean Energy Vistra

Vistra (VST) $137 One of the better utilities with good operating margins and a big focus on clean energy – worth buying on declines.

As data centers hunger for power and nuclear energy gathers steam, Vistra has already benefited from a 200% YTD rise. Its focus on nuclear energy and clean energy partnerships makes it a strong contender, but a short-term correction should make it more attractive.

Vistra’s biggest source of power generation is still hydrocarbons like natural gas, LNG, and coal, accounting for 56% of its total generation as of the first half of 2024 (H1 2024).

However, with the completion of its acquisition of Ohio based nuclear energy utility Energy Harbor in March this year, its focus on nuclear energy in particular and clean energy in general has increased.

As of H1 2024, nuclear energy accounted for 22.9% of its total energy generation, up from 12.3% in H1 2023. The acquisition also made Vistra the second-biggest nuclear energy generator after CEG. Further, with nuclear energy eligible for production tax credits under the US’s Inflation Reduction Act, Vistra’s earnings can be positively impacted with increased focus on nuclear energy.

The stock’s forward EV/EBITDA at 12.38x is also running higher than its five-year average of 7.95x. VST’s forward non-GAAP price-to-earnings (P/E) ratio at 22.84x is similarly higher than the five-year average of 15.17x and as per analysts’ estimates, will remain so next year as well.

As such, a correction would be better for it in the short term, which should give investors a better buying opportunity.

Vistra is not a pure-play nuclear energy company, and that is perhaps to its advantage – it has the cash cow from traditional energy sources to balance out the volatility from nuclear buildout, safety compliance, and regulations.

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Stocks Utilities

Avoid Buying Plug Power – (PLUG) $2.40 

Terrible history of losses, unproven technology, poor execution and shareholder unfriendly because of constant dilution to raise cash. 

High risk of Obsolescence 

  • Technological advancements in next generation Electrolyzers offer more hope for a green hydrogen economy,  
  • Incumbent Electrolyzer producers like Plug Power are at a disadvantage due to technological inefficiencies and financial instability, making them a risky investment. 
  • Hydrogen can be an alternative source of energy, but Plug may not be the right player, its conversion efficiency is supposedly lower in the 75% range compared to newer technologies offering 95%.