Jensen Huang Says AI Needs 1,000 Times More Power. Here's Why Oklo and NuScale Power May Still Suffer.

Artificial intelligence (AI) stocks have continued to outperform the market, with Goldman Sachs projecting AI spending to exceed $1 trillion by 2026. Currently, over a quarter of U.S. businesses utilize AI products. However, the recent drop in AI stocks is not due to uncertainty about demand, but rather concerns over the pace of data center expansion. Building these facilities necessitates community support, which is becoming more challenging to secure, and poses high capital requirements.

Barclays recently reported that AI demand remains robust, but the market is increasingly skeptical about the funding available for hyperscalers to expand their data centers. McKinsey & Co. echoes these concerns, stating that incumbents are unable to meet the growing power demands of AI companies. This has led to increased interest in nuclear energy stocks, particularly small modular reactors (SMRs) being developed by companies such as Oklo (OKLO) and NuScale Power (SMR).

These SMRs can be constructed more rapidly and with lower initial capital costs compared to traditional nuclear plants. Consequently, SMR stocks have been viewed as a promising investment for the AI industry. However, recent evaluations from Bank of America suggest that real-world SMR deployment may not begin until the 2030s or even the 2040s, which could delay the financial success of Oklo and NuScale Power.

Both companies have already sold substantial shares to raise funds, resulting in significant dilution for existing shareholders. With mounting concerns about capital availability and public support, SMR adoption in the AI sector might be hindered, particularly since alternative, lower-cost, and lower-risk energy sources, such as solar, natural gas, and wind, remain readily available.

Consequently, Oklo and NuScale stocks have both declined by more than 60% this year. Despite maintaining a long-term belief in the SMR business model, the investment outlook for SMR stocks is currently clouded by growing uncertainty.