Anticipation: Three Nuclear Shares Likely to Retract Under a Trump Administration Presidency
Glowing Nuclear Markets are on a roll.
The mining companies dedicated to uranium, such as Cameco, Denison Mines, and Uranium Energy, have shown an impressive rise over the past 52 weeks. With gains of 26%, 28%, and 30% respectively, they have outdone the market in their climb. Even utility companies that utilize nuclear power plants for electricity generation have experienced a surge in popularity. Inspired by the news of Constellation Energy's groundbreaking deal to reactivate Three Mile Island for powering Microsoft's server farms, Constellation Energy's shares have surged 87% within the same period - doubling the growth seen in the mining stocks.
However, it's not these big names that I'm interested in discussing today.
Instead, I'd like to delve into the upstart nuclear power companies aiming to replace traditional power plants like the ones operated by Constellation, and generate nuclear power at a local level, utilizing small nuclear reactors. I'd like to talk about NuScale Power (SMR, 3.05%), Oklo (OKLO, -0.24%), and Nano Nuclear Energy (NNE, 4.93%), and why they may soon cause serious financial loss for investors.
A nuclear power evolution
Although I wouldn't categorize these three stocks as identical, there are indeed some commonalities. NuScale Power and Oklo are primarily engaged in developing small modular nuclear reactors, capable of producing a fraction of the power output of a conventional 1 gigawatt-plus nuclear power plant. NuScale's Voygr modules, for example, generate 77 megawatts power each.
Nano Nuclear, on the other hand, is focused on microreactors producing as few as 1 to 20 megawatts, which is significantly less than traditional nuclear reactors. According to their website, Nano Nuclear's microreactors can be used for powering even small-scale applications like satellites, spacecraft, and moon bases.
In essence, all three companies share a common goal of developing and utilizing smaller-scale nuclear reactors. More importantly, their stock performances have also remarkably moved in the same direction. Over the past 12 months, Oklo's stock has increased over 100%, Nano Nuclear shares have risen nearly 350%, and NuScale's stock is on the verge of an 800% surge!
The challenges with nuclear stocks
While Oklo, Nano Nuclear, and NuScale share some parallels with other "nuclear" stocks like Constellation, one significant difference remains: these startups are consistently in the red.
Although NuScale, the most profitable of the trio, has incurred operating losses of almost $1 billion over the past five years, Oklo and Nano Nuclear are yet to realize profits due to their fledgling nature and absence of revenue. Despite analysts' projections suggesting Oklo might eventually turn a profit in 2028, followed by NuScale in 2030, and Nano Nuclear in 2031, these dates are only speculative. Until these companies consistently generate revenue, it's impossible to predict their profit margin in four to six years.
For that matter, they might not even survive that long. NuScale, for example, currently manages a bank balance of $156 million, while consuming nearly $156 million in negative free cash flow annually. Nano Nuclear has a comparatively lower cash reserve of $14 million, but is still burning through $7 million each year. While Oklo seems to be in the most financially stable position, with $235 million in cash and a burn rate of only $26 million, this cash reserve may still not last beyond nine years if it manages its expenditure carefully.
The next decade (or four years)
Should I be forced to wager on any of these companies' future success, Oklo would likely be my preferred choice. But it's still a risky bet.
With Donald Trump stepping into the White House, the next four years might be favorable for nuclear stocks, or they might not be. Although Trump is known to favor oil, gas, and coal over solar and wind energy, his stance on nuclear power is less definite. Regardless, if the new administration continues its "all of the above" energy policy, it's going to take time to develop, approve, and profit from newer technologies like small modular reactors.
In conclusion, it's uncertain whether the next four years of Trump's tenure will benefit new nuclear stocks or provide them with enough time to mature and generate substantial revenue. It seems more likely that at least a few of these companies will soon exhaust their cash reserves, prompting investors to reconsider their optimism towards nuclear stocks.
Perhaps the best time to sell and cash in on these stocks' dramatic rise could be before investors realize this trend is approaching.
Investors who have been actively investing in nuclear power startups, such as NuScale Power, Oklo, and Nano Nuclear Energy, should closely monitor their financials. Despite their impressive stock performance over the past 12 months, these companies are currently operating at a loss, with NuScale incurring the highest losses of nearly $1 billion in the past five years.
Given the uncertainty surrounding the future of nuclear power under the new administration, investors may want to consider diversifying their portfolio or closely evaluating the long-term financial viability of these companies before they exhaust their cash reserves.
