We are entering a renaissance of nuclear power generation. Companies and governments around the world are building and restarting nuclear power plants after realizing they are perfect for the surge in electricity demand from artificial intelligence (AI) and electric cars. It is interesting that environmental groups have opposed nuclear power for decades, even though it produces almost zero carbon emissions after construction. But it seems the world agrees on the usefulness of this form of energy.

Tens of billions of dollars will be spent on nuclear energy over the next few decades, but there are very few nuclear energy stocks publicly available for purchase. One, NuScale Power Company (SMR 0.11%)plans to disrupt the market with its new small modular reactors (SMRs). Its shares are up nearly 500% this year as investors turn to nuclear energy trading. Should you follow them and buy shares yourself?

Increase in demand due to electrification and artificial intelligence

It is important to understand why the demand for nuclear energy is increasing; This demand comes mainly from two areas that need a lot of electricity. The first is electric cars. Electric vehicles now account for 19% of new automotive sales in the United States; this rate was almost zero ten years ago. This is a huge transition for the automotive market, which will switch the power source from gasoline to electricity; This means that the sector will consume more and more electrical energy production in the coming years.

The second factor is the growing size of the data center market in the United States. Driven by demand for artificial intelligence, spending on data centers is growing rapidly and is expected to reach 9.1% of US electricity consumption by 2030. There is no reason for this to stop in 2030 either. Large companies that will need this electricity are seeing the writing on the wall and looking for more sources of electricity from intermittent wind and solar power. For example, Microsoft And Amazon The two largest data center providers are signing long-term agreements to help electric utilities build or restart nuclear power plants.

This brings us to NuScale Power. The company aims to help alleviate some pain points in nuclear energy with SMR technology. Nuclear power plants are often costly and custom built and take a lot of time to get ready and running. SMRs will (at least in theory) be smaller reactors with a repeatable process. This makes them cheaper, scalable, and faster to market once all regulatory approvals are received. If nuclear power switches to SMRs and NuScale Power becomes the leading provider, there will be virtually unlimited demand for its products.

NuScale won’t generate meaningful revenue for years

The problem is that NuScale Power is far from this reality. The company has never sold SMR and today has almost zero revenue. Many companies in many countries have proposed deals with NuScale, but none are operational and, if built, they won’t be ready until 2030 or later. More than five years passed before NuScale Power made any sort of revenue, let alone a profit.

Considering all the upfront costs in research and development, Nuscale is burning through a lot of cash right now. During the last 12 months, free cash flow It was minus $170 million. That’s more than the cash it keeps on the balance sheet ($130 million). This means that NuScale will run out of money within a year, but needs more than five years of runway (if not longer) before commercializing its SMRs. Management will need to raise money in the form of stock offerings or debt to bridge the gap between this cash burn and when its SMRs will finally be sold.

SMR Market Cap data Y Charts

Stock is shaky at best

Investors in NuScale Power are currently considering the upside of SMR technology. That’s why the stock is up nearly 500% in less than 12 months. But there are a lot of potential downsides that they may be forgetting right now, and that’s how investors can get into trouble.

First, it trades at a market cap of $1.7 billion and has zero revenue. Shareholders will likely be under pressure from stock offerings or debt that are due to occur within the next 12 months. This will have a negative impact on long-term shareholder returns.

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

NuScale Power is a pre-revenue business burning tons of cash that will likely remain pre-revenue through 2030. Even if the stock rises, smart investors will stay away from this risky stock. There are better places to keep your money right now.