Oklo

It seems as if all eyes are on Oklo (OKLO 1.39%) right now. Shares have surged in value by more than 700% since April. But when you look closer, Oklo’s entire industry is skyrocketing. Nuscale Power, another company focused on small modular nuclear reactors, has seen its valuation nearly quadruple since April.

Why are stocks like Oklo and Nuscale rising exponentially? There’s one primary factor to be aware of now for investors to consider.

Small-scale nuclear power may soon be a reality

For decades, small modular nuclear reactors have been relegated only to science fiction. In theory, the technology makes a lot of sense. Small modular reactors, commonly referred to as SMRs, can be deployed anywhere in the world, even in remote locations without any road access. Once built, they can produce fairly affordable power with minimal carbon emissions. And they don’t have as many issues with generation intermittency as other renewable energy sources like wind or solar.

Companies like Oklo and Nuscale, however, claim that they are just a handful of years away from constructing the world’s first commercial SMRs. Nuscale is already certified by the Nuclear Regulatory Council in the U.S. Oklo is currently in the application process. If successful, this industry could upend the global energy paradigm, delivering low-cost, low-carbon fuel at any scale, anywhere in the world.

Image source: Getty Images.

Here’s the problem: We still don’t know if what these companies are promising is even possible. Neither Oklo nor Nuscale has any existing orders from customers. And analysts are ready to point out the industry’s consistent failures over the years.

Many of these failures weren’t technological, but simply a matter of cost, with huge cost overruns the norm throughout history. “The technical and extreme cost challenges of SMRs has been known and widely reported on for years, raising the question of why the hype continues to grow,” observes Jim Green, a member of the Nuclear Consulting Group.

Nuclear reactor builder Oklo (OKLO -0.13%) stock jumped 2.4% through 11:25 a.m. ET Thursday.

For that, you can thank the friendly analysts at Canaccord Genuity.

Image source: Getty Images.

Canaccord loves Oklo

Canaccord Genuity initiated coverage of nuclear company Oklo with a buy rating and a $175 price target on this $137 stock, as StreetInsider.com reports today. That may sound like a high price for a start-up with no revenue that isn’t expected to have revenue for another couple years, nor earn its first profit before 2030. But here’s the thing:

Canaccord isn’t thinking about 2030 here. It’s looking much farther out, with “our model stretching to 2050.”

Peering 25 years into the future, Canaccord sees “a new nuclear age emerging; one where nuclear assets grow not only in volume but as a percentage of the global energy mix.” Canaccord expects Oklo to play an outsize role in this future. “Vertically integrated,” boasting a “deftly constructed strategy” for rolling out small nuclear plants, and good “technology capabilities,” Canaccord is placing a bet on Oklo not just surviving until 2030, but going on to profit from the new nuclear renaissance.

Is Oklo stock a risky buy?

What makes Canaccord so confident about Oklo? With $530 million in the bank and a $53 million cash burn rate, it looks at first glance like Oklo has all the money it needs (and more) to last until profits arrive in 2030.

Problem is, most analysts think Oklo’s cash burn will accelerate dramatically as it approaches commercialization (and profit). Cash consumption over the next five years could actually reach $1.5 billion, which is more than Oklo has handy just right now.

Bright as its future looks, Oklo still needs to come up with even more cash, or else it will go bust.