Key Points
Space Exploration Technologies CEO Elon Musk has long been known for his war on carbon emissions. In a 2006 blog post for Tesla, he laid out his ultimate aim: “[T]he overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy toward a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.”
In a 2016 blog post, Musk went even further:
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By definition, we must at some point achieve a sustainable energy economy, or we will run out of fossil fuels to burn and civilization will collapse. Given that we must get off fossil fuels anyway and that virtually all scientists agree that dramatically increasing atmospheric and oceanic carbon levels is insane, the faster we achieve sustainability, the better.
Musk’s businesses have contributed heavily to the global power transition. Tesla is now producing more than 1.5 million electric vehicles per year while also producing massive battery systems to support renewables.
But Musk faces a new challenge: SpaceX’s rapidly rising energy demands to support rocket launches and the scaling of its AI compute infrastructure.
“I am not against using natural gas power as a bridge to solar and even using it long-term to some degree to help with the dip in solar power during the deep winter months,” Musk wrote on X on July 31. This shift in sentiment is understandable given recent news that SpaceX is building a dedicated natural gas pipeline to support rocket launches, while its rapidly growing AI infrastructure increasingly relies on natural gas for power.
Rising demand for natural gas could hurt nuclear energy investors, particularly those invested in SMR stocks like NuScale Power (NYSE: SMR) and Oklo (NYSE: OKLO).
Oklo and NuScale investors should be worried about renewed interest in natural gas
Thanks to rising energy demand from the AI sector, nuclear energy is experiencing a renaissance. That’s the conclusion reached by analysts at Bank of America. In total, the firm sees nuclear energy becoming a $10 trillion global opportunity over the coming decades.
Stocks like Oklo and NuScale are particularly primed to benefit, given their focus on small modular reactors (SMRs). The AI industry needs massive amounts of clean, baseload power as quickly as possible. Building new nuclear power plants often takes a decade or more, limiting their ability to meet near-term power demands.
SMRs are essentially miniature nuclear power plants. They can — at least in theory — be built faster with lower up-front costs than larger, more conventional nuclear systems.
Tesla and SpaceX CEO Elon Musk. Image source: The White House
In the long run, SMR systems are not cheaper to build and operate than larger plants. The advantage of SMRs is largely their speed of construction and modularity, allowing the system to scale with growing demand.
This is the primary challenge posed by the resurgence of natural gas. If AI companies can meet near-term demand with natural gas, this fuel can then be a bridge until larger conventional nuclear power plants come online, likely at lower ongoing operating costs than a similarly sized SMR.
This challenge is particularly daunting for Oklo and NuScale, since both companies are currently unprofitable. Meaningful cash flows are likely still years away. If AI companies can delay SMR adoption by focusing on lower-cost, lower-risk natural gas facilities, the timing of these cash flows could be stretched even further. That not only introduces additional shareholder dilution but also considerably increases uncertainty regarding both companies’ long-term financial viability.
In 2024, when NuScale received a cancellation notice for the largest project in its pipeline, one industry expert predicted that the collapse would permanently hinder global adoption of SMRs. “In a rational world, no utility or government would invest another dime in these theoretical reactor concepts,” the expert warned.
Only two SMRs are currently in commercial operation worldwide. So, while the SMR industry is exciting and offers plenty of long-term growth potential, real-world traction remains limited. More reliance on natural gas could delay further real-world traction. That’s bad news for SMR stocks like Oklo and NuScale.
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Bank of America is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
