Imagine you want to build a power plant. The traditional nuclear approach is like commissioning the construction of a single, colossal cathedral. It takes over a decade, costs tens of billions of dollars, requires thousands of custom-designed parts, and involves immense construction complexity on-site. The financial and operational risks are astronomical. NuScale Power's idea is radically different. Instead of a giant cathedral, think of building with high-tech, super-safe LEGO bricks. NuScale has designed a self-contained “Power Module™”. Each module is a small, 77-megawatt nuclear reactor, roughly the size of a private jet's fuselage. These modules are designed to be mass-produced in a factory, shipped to a site by truck or rail, and then assembled. A customer could start with a 4-module plant (308 megawatts) and later expand to 6 or 12 modules as their power needs grow. This “Small Modular Reactor” (SMR) concept promises several game-changing advantages:
NuScale made history by becoming the first and only SMR design to be certified by the U.S. Nuclear Regulatory Commission (NRC), giving it a significant head start. However, the company is still in its infancy, with no commercial plants in operation yet. It is what investors call a “pre-revenue” company, meaning its value is based entirely on the promise of future success, not on current profits.
“The difference between successful and unsuccessful investors is not necessarily intelligence, but discipline. The discipline to stick to a strategy, to avoid being swayed by emotion, and to do your own homework.” - Seth Klarman
This quote is particularly relevant for a company like NuScale, which generates strong emotions—both excitement about its potential and fear of its risks. A disciplined, analytical approach is essential.
For a value investor, NuScale Power is a fascinating and deeply challenging company. It pushes the boundaries of traditional value investing, which typically focuses on established businesses with predictable earnings and a long track record. A value investor's primary goal is to buy a business for significantly less than its underlying, or intrinsic, worth. With NuScale, calculating that intrinsic value today is nearly impossible. Its future cash flows are a matter of educated guesswork, dependent on a long chain of “ifs”: if they can secure contracts, if they can manufacture on budget, if their plants operate as advertised, and if they can fend off competitors. Therefore, analyzing NuScale forces a value investor to confront several core principles: 1. Circle of Competence: Do you truly understand the technology, the economics of energy production, and the labyrinthine world of nuclear regulation? For most, NuScale lies far outside their circle of competence. Acknowledging this is the first step of a wise investor. 2. Investing vs. Speculation: Benjamin Graham, the father of value investing, defined investing as an operation that, “upon thorough analysis promises safety of principal and an adequate return.” Anything else, he argued, is speculation. An investment in NuScale today is, by this strict definition, speculative. It does not promise safety of principal. The risk of total loss is real. This doesn't mean it's a “bad” investment, but one must be honest about its nature. 3. The Allure of a “Story Stock”: NuScale has a powerful and compelling story: solving climate change with safe, innovative nuclear technology. Stories sell stocks, but they don't generate cash flow. A value investor must be able to separate the exciting narrative from the cold, hard business fundamentals. The biggest danger is falling in love with the story and ignoring the daunting risks. 4. The Quest for an Economic Moat: A moat is a durable competitive advantage. NuScale's potential moat is enormous. Its NRC certification is a formidable barrier to entry that took years and hundreds of millions of dollars to achieve. Its proprietary technology could also be a powerful advantage. However, this moat is not yet proven in the marketplace. It's a blueprint for a castle, not a fortified castle itself. NuScale matters because it's a test case. It forces us to ask: How do the principles of value investing apply to early-stage, world-changing technology? The answer is that the principles remain the same—insist on understanding the business, demand a margin_of_safety, and be brutally realistic about risks—but their application becomes exponentially more difficult.
Because NuScale has no history of profits, traditional valuation metrics like the P/E ratio are useless. Instead, a value investor must act more like a venture capitalist, performing deep, qualitative due diligence. This is not about precise calculation but about judging probabilities and understanding the key drivers of success or failure.
An investor considering NuScale should create a checklist to systematically analyze the business.
After going through this checklist, the goal is to form an investment thesis—a clear, written-out argument for why this is or is not a good investment at the current price. Your thesis for NuScale will be built on a foundation of assumptions about future events. For example: “I believe NuScale is a good investment because I expect them to secure two firm contracts by 2026, achieve a target LCOE of $80/MWh, and I believe the market is underestimating the demand from data centers. Even after accounting for 50% future dilution, my discounted cash flow analysis, using very conservative assumptions, suggests an intrinsic_value of X, which is double the current stock price.” Conversely, a bear thesis might sound like: “While the technology is promising, the cancellation of the CFPP project demonstrates that the company cannot yet control costs. I believe competition from other SMRs and advanced renewables will compress margins. The risk of project failure and further shareholder dilution is too high, and the current stock price does not offer an adequate margin_of_safety for these risks.” For a value investor, the conclusion will likely be that the range of potential outcomes is simply too wide to make a confident valuation. The investment thesis then becomes one of risk management: either avoid the stock entirely or allocate a very small, speculative portion of a well-diversified portfolio to it, fully prepared to lose the entire amount.
Let's imagine two investors, “Speculator Sally” and “Value Investor Victor,” both looking at NuScale Power after it appears in a news headline about “The Future of Energy.”
| Investor Approach | Speculator Sally | Value Investor Victor | |||
| Focus | The story, the stock chart, news headlines, and social media buzz. | The business fundamentals, NRC filings, financial statements, and competitive landscape. | |||
|---|---|---|---|---|---|
| Analysis | Sally hears that nuclear is “the next big thing” for AI data centers. She sees the stock went up 20% last month and buys, fearing she'll miss out. | Victor is intrigued. He spends two weeks reading NuScale's 10-K report, learns about the CFPP project cancellation, and researches competing SMR designs. He builds a model of potential future revenues. | |||
| Key Question | “How high can this stock go?” | “What is this business reasonably worth, and what are the chances I am wrong?” | |||
| Decision & Outcome | She buys a large position. The company announces a delay in a potential project, and the stock drops 30%. Panicked, Sally sells at a significant loss. | Victor's model shows that for the stock to be attractive, NuScale must execute perfectly. Given the history of cost overruns in the nuclear industry, he concludes the risks are too high at the current price. He decides to put the stock on a watchlist, waiting for either a much lower price or concrete proof of commercial success. |
This example illustrates the core difference. Sally's actions were driven by emotion and narrative (FOMO - Fear Of Missing Out). Victor's actions were driven by disciplined analysis and a focus on risk_management. For a company like NuScale, Victor's approach is the essence of value investing.
A balanced view requires understanding both the optimistic and pessimistic arguments.