Anticipated Developments in Nuclear Energy Shares, Specifically NuScale Power Corporation
The United States government is pushing for the construction of nuclear power facilities, appreciating their potential to deliver carbon-free electricity consistently. However, one company, NuScale Power, is facing challenges in this regard.
NuScale Power, the only small reactor to have approval from the Nuclear Regulatory Commission (NRC), has not secured any customer orders for its modular reactors. This lack of customer orders is not a good sign, especially considering the company's ambitious plans to deliver its small modular reactors in a scalable fashion and in a 36-month construction time.
Despite receiving $600 million in funding from the Department of Energy (DOE), NuScale Power's financials remain a concern. The company is currently generating $49 million in revenue annually, mostly from project studies and grants, making it pre-revenue. Moreover, NuScale's products still cannot compete economically with other energy-generation sources.
The company's financial struggles are evident in its cash burn. Although internal cost cuts have reduced NuScale's annual negative free cash flow to $98 million, this may slow development progress.
NuScale Power's stock performance has been impressive, trading near all-time highs. However, the company's high valuation, with a price-to-sales (P/S) ratio of 77, suggests that investors might be getting ahead of themselves. The stock's strong performance over the last year does not necessarily mean it should be bought without careful consideration.
The utility/energy sector, including NuScale Power, typically operates at low margins due to its competitive and capital-intensive nature. This, coupled with the challenges NuScale Power is facing in securing customer orders, raises questions about the company's ability to deliver growth to the nuclear energy sector as anticipated.
In the past, NuScale Power has faced setbacks. Projects in Idaho and Utah were cancelled due to a lack of demand and cost overruns, respectively. The cancellation of the project in Idaho for six nuclear power modules was a significant blow, as it was intended to showcase the scalability of NuScale's technology.
President Trump's executive order aiming to increase nuclear power generation in the United States from 100 gigawatts to over 400 gigawatts by 2050 offers a glimmer of hope for NuScale Power. However, with no progress in getting customers for NuScale Power's small modular reactor technologies so far, the company is years away from completing a project.
In conclusion, while NuScale Power's ambitions are commendable, the company's inability to secure customer orders and its financial challenges raise concerns about its ability to deliver on its promises. Investors should approach NuScale Power's stock with caution, and the company will likely continue to burn cash and lose money for the rest of this decade as it works towards completing a project.
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