NuScale stock forecast: promising, but too many red flags

NuScale Power (SMR) stock price has gone vertical in the past few days, helped by the ongoing nuclear energy recovery. It has risen in the past six consecutive weeks, reaching a record high of $19.32, giving its market valuation to over $3.40 billion.

Other nuclear energy-related stocks have surged. Oklo, the Sam Bankman-linked company has jumped by over 40% this week after inking a deal with Google, one of the biggest companies in the tech sector. Its stock has jumped by over 200% from its lowest point this year.

Similarly, the Sprott Uranium Trust, which tracks the price of uranium, has jumped by over 23% from its lowest level in August. The Global X Uranium ETF (URA) ETF has risen by over 30% in the last twelve months and by 27% in the last 30 days.

NuScale and modular nuclear energy

The nuclear energy industry is seeing a strong comeback as countries continue their transition from fossil energy to clean energy.

Many analysts believe that it is one of the cleanest and most reliable energy sources in the industry. 

Nuclear is better than solar, which is only effective when the sun is shining. Wind also works when the wind is blowing. 

Nuclear, on the other hand, generates power throughout, provided that there is enough uranium. 

A key challenge for nuclear energy is that many large plants have attracted some safety concerns. 

Therefore, the biggest trend in the industry is in the small modular nuclear reactors (SMR), which are small reactors that can be assembled locally. For example, a factory can contract the installation of such a reactor, which will help it in the transition process.

A key area that could spur this growth is in the data center industry, which is seeing robust demand because of the rising AI demand.

The industry has attracted several companies in the sector. Rolls-Royce Holdings, the giant British company, has moved to the industry and is working to deploy its plants in the UK.

NuScale is another top American company that aims to become a big player in the sector. It has developed the NuScale Power Module, which can generate about 77 MWe.

The company has also created the VOYGR power plant, which has a capacity of up to 12 power modules, bringing in 924 MWe. 

Analysts believe that these modular plants will continue doing well as the energy sector improves. A recent study established that global power consumption will rise by 191% between 2020 and 2040.

Cash burning machine

The challenge for investing in NuScale is that it is a cash-incinerating company for now. It has already burnt over $2 billion since 2007 when it started working on the technology. 

It raised these mostly from Fluor Corporation, a company that focuses on the engineering and construction sector. 

The company also raised some of the cash when it went public through a SPAC merger deal with Spring Valley. It has also raised money from the Department of Energy. 

NuScale Power’s losses have also been growing in the past few years. According to SeekingAlpha, it had a net loss of over $82 million in the trailing twelve months (TTM). Its total loss in the past five years stood at over $376 million. 

The challenge, however, is that NuScale has been a highly dilutive company in the past few years. According to TradingView, the number of outstanding shares rose from 23 million in 2022 to over 92 million today. This means that early investors have been diluted by over 300% in this period.

Dilution is an important concept that reduces the stake of these investors. It also reduces the amount of money that these investors make per share in the future.

This trend will continue since the company ended the last quarter with $136 million in cash. While this is a big amount, the company also had a net loss of $74.4 million during the quarter. 

Also, there are signs that some insiders are selling the stock. Data by Barchart shows that insiders have sold 424k shares in the last three months and 522,648 in the last 12 months.

NuScale stock price analysis

SMR chart by TradingView

The daily chart shows that the SMR share price has been in a strong bull run in the past few months. It recently crossed the important resistance point at $16.94, its highest point in July this year.

The stock has moved above the 50-day and 200-day Exponential Moving Averages (EMA). Also, the MACD and the Relative Strength Index (RSI) have moved to the overbought level.

Therefore, I believe that the stock will retreat in the coming days or weeks as the hype surrounding nuclear power fades. If this happens, the next point to watch will be at $16.9, its highest swing on July 15. The key date to watch will be on November 7 when the company publishes its financial results.

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