Nuclear power startups are starting to look like a bubble

Commonwealth is at the vanguard of a host of nuclear startups — some developing fusion technology, others conventional fission but in smaller, more cost-effective packaging than traditional big reactors — that are drawing billions of dollars in investment even though none are yet sending electrons to the grid. The nascent sector has strong political backing and has made significant progress on core engineering problems. Now, a key question is which specific companies will prove to be a smart play, or a bust, for their investors. With dozens of startups now in the field, some bankruptcies and consolidations are inevitable. For a private company like Commonwealth, that risk remains limited to the handful of VCs and tech companies bankrolling it. But others, especially in the small modular reactor (SMR) field, are now making forays into the public market, creating new opportunities and risks for retail investors. And Wall Street is beginning to cast a wary eye toward some in particular.

Since the Sam Altman-backed SMR startup Oklo went public last year, for example, its share price has soared from about $8 to $115. This week Bank of America downgraded its rating for Oklo stock from “buy” to “neutral,” and another SMR startup, NuScale, from “neutral” to “underperform.” Goldman Sachs launched its tracking of Oklo stock this week, also giving it a lackluster neutral rating, despite Oklo’s selection this week by the Department of Energy for a new fast-tracking program.

In general, the hysteria around power demand is pushing the valuations of many newly public energy startups beyond what they will realistically be able to deliver, Dimple Gosai, head of US clean tech equity research at Bank of America, told Semafor.

“The disconnect between fundamentals and valuation is too wide to ignore,” she said. “There’s too much optimism baked into the stock price here.”

Sky-high valuations reflect Wall Street’s growing hunger for energy technologies that are well-suited to pair with AI data centers; advanced nuclear, which emits no carbon and, unlike renewables, can generate consistent round-the-clock power, seems to fit the bill. And, indeed, Oklo and NuScale have fans on Wall Street: Barclays also started tracking the stocks this week with a more optimistic outlook, writing in a research note that both stocks “could have material upside potential from current levels.”

But to some analysts like Gosai, the sector is getting a bit too frothy. The odds of advanced nuclear technology simply not working are low, she believes. But there are a number of bottlenecks that will make it hard for these companies to fulfill their stated buildout aspirations, including limited supply chains for nuclear fuel and containment vessels, and the familiar red tape for construction permitting and grid interconnection. Data center companies are also focused above all on speed, she said, a major mark against any kind of nuclear. Nevertheless, she said, more nuclear startup IPOs are likely forthcoming.

Whether that list will include Commonwealth is unknown: Trent Bauserman, Commonwealth’s head of federal affairs, declined to speculate on whether or when Commonwealth stock could be up for grabs. And for now, the company appears to have one of the strongest positions among its peers: It raised $863 million this year, and recently struck advance power sales deals with the Italian oil major Eni and with Google parent Alphabet once its first reactor is operational — something Bauserman told Semafor could happen before the end of Trump’s term in office: “We’re very bullish about our commercial timelines.”