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Why NuScale Power (SMR) Is a Diamond in the Rough for the Energy Ecosystem

Barchart - Wed May 31, 2023

From a cursory glance, nuclear energy specialist NuScale Power (SMR) doesn’t readily appear a viable investment. For one thing, the underlying industry suffers from a product evangelism challenge. While nuclear power delivers the goods, it also poses severe and practically permanent consequences if circumstances go awry.

Looking at the matter from an investment perspective, SMR stock appears incredibly speculative. Since the beginning of this year, shares stumbled nearly 27% of equity value. Since making its public market debut (as a special purpose acquisition company, no less), SMR gave up just under 26%.

Still, by just focusing on the red ink, investors would be sidestepping an intriguing scientific narrative. As well, demographic and geopolitical realities may force the needle to swing positively for SMR stock. Adding to burgeoning contrarian sentiment, NuScale recently attracted interest among options traders.

Below is a deeper look at SMR stock and its potential feasibility as a long-term powerhouse investment.

Options Traders Focus on SMR Stock

Following the close of the May 30 session, SMR stock represented one of the highlights for Barchart’s screener for unusual stock options volume. Specifically, total volume came out to 3,348 contracts against an open interest reading of 34,445. As well, the delta between the Tuesday session volume and the trailing one-month average metric reached 187.63%.

Drilling down, call volume hit 2,916 contracts against put volume of only 432. This pairing yielded a put/call volume ratio of 0.15, on paper favoring the bulls. While shares have been beaten up in the open market this year, the compounding of fundamental realities suggest that at some point, the tables might turn.

Primarily from a financial perspective, the Office of Nuclear Energy states that small modular reactors (SMRs) – which are advanced nuclear reactors featuring about one-third of the generating capacity of traditional nuclear powerplants – offer a lower initial capital investment. As a result, they require less prep time to build.

In addition, SMRs offer siting flexibility. Per the government agency’s website, “SMRs can provide power for applications where large plants are not needed or sites lack the infrastructure to support a large unit. This would include smaller electrical markets, isolated areas, smaller grids, sites with limited water and acreage, or unique industrial applications.”

Perhaps most importantly, “SMRs can be coupled with other energy sources, including renewables and fossil energy, to leverage resources and produce higher efficiencies and multiple energy end-products while increasing grid stability and security.”

Electrification of Mobility Will Probably Require Nuclear Expansion

While analysts often wax poetic of electric vehicle companies like Tesla (TSLA) contributing to the electrification of mobility and transportation, many lay observers often overlook the reality that such ambitions will require a broader upgrade of energy infrastructures. True, a reduction of dependency on hydrocarbons offers economic and geopolitical security. But going cold turkey on hydrocarbons is unrealistic unless we have mechanisms to power full EV integration.

Although renewable energy technologies (such as wind and solar) improved dramatically over the years, their intermittency poses significant challenges and vulnerabilities. However, the almost-always on profile of nuclear power facilities will better enable the mass pivot to electrification.

Also, prospective speculators of SMR stock should consider the potentially paradigm-shifting impact of migration trends. For example, the U.S. Census Bureau reports that the fastest-growing cities are in the western and southern regions of the nation. As certain locales receive an influx of workers and consumers, underlying infrastructure would need to be improved.

Given the accretive profile of SMRs, NuScale could be a profoundly relevant investment for the long haul.

Risk Factors to Consider Before Jumping on NuScale

Although NuScale brings tremendous relevancy to the table, prospective investors of SMR stock should be cognizant of certain risk factors. Specific to the underlying enterprise, it hasn’t consistently posted desirable financial statistics.

As stated back in late April of this year, NuScale has seen steady improvements in revenue growth. Unfortunately, the expansion of the top line has not translated to bottom-line improvement. Because of this dynamic, the investment resource suggested that SMR stock was not worth buying then. And frankly, this assessment has been proven more than correct.

Just in the trailing month, NuScale shares shed more than 12% of equity value.

On a broader level, research led by Stanford University noted that SMRs will increase the volume of nuclear waste necessary for management and disposal. In turn, this equation imposes a headwind to the benefits of lower economic costs that SMRs deploy.

In fairness, debate still rages about the holistic impact of SMRs. Nevertheless, it’s something to consider before plunking your hard-earned dollars into NuScale stock.

Harsh Realities Force a Closer Look at SMR Stock

While undeniably risky – SMR stock carries a 100% strong sell technical outlook by Barchart – NuScale might win out in the long run because of harsh realities. In the energy ecosystem, people can’t have their cake and eat it too. Put another way, a green future where everyone drives around in EVs probably isn’t possible without an infrastructure upgrade. Fortunately, SMRs are well-positioned to facilitate such an improvement, thus making NuScale an unavoidable topic of discussion.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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