We are entering a renaissance in nuclear energy production. Companies and governments around the world are building and restarting nuclear power plants after realizing they are perfect for meeting growing electricity demand from artificial intelligence (AI) and electric cars. It’s curious that environmental groups have opposed nuclear power for decades, despite the fact that it produces almost no carbon emissions after construction. However, it seems the world is finally on the same page when it comes to the usefulness of this type of energy.

Tens of billions will be spent on nuclear power over the coming decades, but there are few publicly traded nuclear power stocks that one can buy. A, NuScale Power Corp. (RMS 0.11%)plans to disrupt the market with its new small modular reactors (SMR). Its shares are up nearly 500% this year as investors jump into the nuclear power business. Should you follow them and buy stocks yourself?

Demand growth due to electrification and AI

It is important to understand why there is a growing demand for nuclear power: it mainly comes from two areas that require a lot of electricity. First there are electric cars. Electric vehicles now represent 19% of new vehicle sales in the United States, up from virtually zero a decade ago. This is a huge transition for the automotive market, which will shift from gasoline to electric power source, which means the sector will consume more and more electric power generation in years to come.

The second factor is the growing size of the data center market in the United States. Supercharged by demand for AI, spending on data centers is growing rapidly and is expected to reach 9.1% of U.S. electricity consumption by 2030. There’s no reason this should either. stop in 2030. Large companies that will need this electricity are emerging and looking for more sources of electricity than intermittent wind and solar power. For example, Microsoft And Amazon — the two largest data center providers — sign long-term deals to help power utilities build or restart nuclear power plants.

This brings us to NuScale Power. The company aims to help alleviate some of the problems associated with nuclear power through its SMR technology. Nuclear power plants are typically expensive and custom-built, and take a long time to commission. SMRs (at least in theory) will be smaller reactors with a repeatable process. This makes them cheaper, scalable, and hopefully quicker to market once all regulatory approvals are obtained. If nuclear power transitions to SMRs and NuScale Power is the primary supplier, demand for its products will be almost unlimited.

NuScale won’t generate significant revenue for years

The problem is that NuScale Power is far from this reality. The company has never sold an SMR and today has virtually no turnover. Many companies in several countries have proposed deals with NuScale, but none are operational and, if they are ever built, they won’t be until 2030 or later. It will be more than five years before NuScale Power generates any form of revenue, let alone profits.

Considering all the upfront research and development costs, Nuscale is currently burning through a lot of cash. Over the past 12 months, his free cash flow was negative $170 million. This is more than the cash it holds on the balance sheet ($130 million). This means that NuScale is on track to run out of money within a year, but needs upwards of five years of runway, if not more, before bringing its SMRs to market. Management will need to raise funds in the form of equity offerings or debt to bridge the gap between this cash burn and when its SMRs are ultimately sold.

Market capitalization of SMR data by Y Charts

Stock is fragile at best

Investors in NuScale Power are currently considering the benefits of SMR technology. This is why the stock has soared almost 500% in less than 12 months. However, there are many potential downsides that they may be overlooking at present, and this is how investors can get into trouble.

For one, it trades at a market cap of $1.7 billion and generates no revenue. Shareholders are likely to be burdened by stock offerings or debt, which are expected to occur within the next 12 months. This will pose a barrier to long-term returns for shareholders.

Second, we don’t even know if SMR technology will work. This is unproven and it is unclear whether utilities want these solutions or the older, large nuclear reactors. The idea of ​​SMRs makes sense, but it’s just an idea. And ideas don’t generate positive cash flow.

NuScale Power is a pre-revenue company burning through a ton of cash that will likely remain in pre-revenue until 2030. Even if the stock soars, smart investors will stay away from this risky stock. There are better places to store your money these days.