AI Power Demand And ENTRA1 Risks Will Undermine Long Term Nuclear Ambitions

Catalysts

About NuScale Power

NuScale Power develops small modular nuclear reactors designed to provide scalable, always on, carbon free baseload power.

What are the underlying business or industry changes driving this perspective?

• Even if power demand from AI data centers and advanced manufacturing continues to rise, NuScale may struggle to convert TVA and other utility interest into timely binding PPAs. This would delay module orders and push out meaningful revenue and earnings inflection well into the next decade.
• Dependence on ENTRA1 as an exclusive commercialization and project development partner risks concentration of execution failure. If ENTRA1 cannot secure financing or construction partners at scale, NuScale could face years of high cash burn and weak margins without corresponding equipment revenue.
• While global policy support for clean, always on power and nuclear-friendly frameworks like the U.S. Japan agreement are growing, cost inflation, FOAK project risk and regulatory bottlenecks in COLA and site permitting could force NuScale to concede pricing or absorb overruns, compressing long term net margins.
• Long build times for nuclear infrastructure and a ramp in competing low carbon generation options, including large scale renewables paired with storage and alternative reactor designs, may erode NuScale’s first mover advantage before its 6 gigawatt pipeline is monetized. This could limit long run revenue scale and earnings power.
• The milestone based payment structure with ENTRA1 front loads significant cash outflows and adds balance sheet strain. If successive projects slip or are downsized, NuScale could carry elevated share count and financing costs without the OEM level gross profit needed to lift net margins sustainably.

Assumptions

This narrative explores a more pessimistic perspective on NuScale Power compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming NuScale Power's revenue will decrease by 14.4% annually over the next 3 years.
• The bearish analysts are not forecasting that NuScale Power will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate NuScale Power's profit margin will increase from -594.6% to the average US Electrical industry of 11.8% in 3 years.
• If NuScale Power's profit margin were to converge on the industry average, you could expect earnings to reach $4.7 million (and earnings per share of $0.02) by about December 2028, up from $-379.9 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 846.0x on those 2028 earnings, up from -15.8x today. This future PE is greater than the current PE for the US Electrical industry at 31.9x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.04%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The TVA and ENTRA1 framework for up to 6 gigawatts of NuScale capacity, backed by modules already in production and a 2030 targeted COD for the first plant, could translate into firm PPAs and multi decade offtake, driving a step change higher in contracted revenue visibility and long term earnings power.
• NuScale’s status as the only SMR provider with NRC design approval, a successful 77 megawatt uprate and deep licensing experience in COLA processes may preserve its first mover advantage as nuclear demand accelerates, supporting premium pricing and structurally strong net margins over time.
• Global policy tailwinds, including the U.S. Japan framework that uniquely names NuScale and ENTRA1 as the sole group under power development for AI and positions ENTRA1 for up to $25 billion of capital, could unlock large scale project financing that materially lifts NuScale’s order book, revenue scale and operating leverage.
• The RoPower project in Romania, which is already generating revenue and positive cash flow through Fluor led FEED 2 work at a brownfield coal site, may lead to a final investment decision in 2026 or 2027 and serve as a reference plant that expands international demand, bolstering long run revenue growth and margin expansion.
• A strengthened liquidity position of over $750 million, combined with the ability to raise equity and structure milestone based OEM contracts, may allow NuScale to bridge the pre revenue buildout phase without severe dilution while scaling manufacturing efficiencies, which would support future gross margins and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for NuScale Power is $15.0, which represents up to two standard deviations below the consensus price target of $36.88. This valuation is based on what can be assumed as the expectations of NuScale Power's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $40.0 million, earnings will come to $4.7 million, and it would be trading on a PE ratio of 846.0x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $21.22, the analyst price target of $15.0 is 41.5% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.