Will General Electric's New Canadian Nuclear Reactor Doom Oklo to Irrelevance?

Ever since President Donald Trump signed a series of executive orders promoting nuclear power development in May, small modular nuclear reactors (SMRs) have been all the rage. And investors have rushed to buy shares of the three best-known names in this nascent industry: Nano Nuclear Energy (NASDAQ: NNE), NuScale Power (NYSE: SMR), and Oklo (NYSE: OKLO).

Nano Nuclear and NuScale stocks have been the least successful of the trio; their share prices are both up more than double over the past year. Oklo stock has soared more than 500% over the last 12 months.

And yet, all three of these nuclear stocks operate under a significant constraint that could prevent their dominating the SMR market: They're currently unprofitable and, according to analysts polled by S&P Global Market Intelligence, unlikely to earn any profit before 2030 at the earliest (2033 for Nano Nuclear).

But GE Vernova (NYSE: GEV) is profitable. It's worth $157 billion in market capitalization, or about 6 times as big as Nano, NuScale, and Oklo combined.

And GE Vernova just landed a big nuclear SMR contract... in Canada.

Image source: Getty Images.

Introducing GE Vernova

Nano, NuScale, and Oklo have all gotten plenty of good press in recent months. Nano Nuclear is partnering with the state of Illinois to set up a Kronos MMR Energy System nuclear reactor outside Chicago. NuScale, as it never ceases to remind us, is still "the first and only SMR to have its design certified by the U.S. Nuclear Regulatory Commission" -- and in fact now has two such designs approved. Oklo has won multiple pilot projects to set up SMRs from the U.S. Department of Energy.

In a momentum-driven market, press releases like these can drive even unprofitable stocks very high indeed. Press releases alone, however, aren't enough -- to succeed long-term, a company also needs revenue and profit that it can use to reinvest in its business.

That's where GE Vernova may have an advantage.

Vernova boasts $37.7 billion in annual revenue, according to S&P data, and earned $1.7 billion on its sales over the last 12 months -- with free cash flow twice as strong as reported net income: $3.5 billion. And as you'd expect for a company with ample cash profit, Vernova's balance sheet is rock solid, with $6.5 billion more cash than debt on hand.

Announcing GE Vernova's Canadian contract

Last month, GE Vernova also got the kind of positive PR that could serve to excite nuclear investors about the stock. As Canada's CBC News reported, the governments of both Canada and its province Ontario will spend $3 billion to build a set of four small modular nuclear reactors "next door to the Darlington power plant," about 40 miles east of Toronto, Ontario. Once complete, the four BWRX-300 SMR reactors will produce a total of 1,200 megawatts of power, more than the equivalent of one single standard technology nuclear reactor.

Prime Minister Mark Carney called the new SMRs "an entirely new kind of nuclear reactor" and "a generational investment ... that will extend Canada's world leadership in clean energy." Ontario will contribute $1 billion to the project, with the national Canada Growth Fund picking up the remaining $2 billion.

The government subsidies won't cover the whole cost of the project, however, which is estimated to cost $20.9 billion in total. (On the plus side, these are probably Canadian dollars -- so in USD the cost will be closer to $14.8 billion.)

Who benefits?

Ontario Power Generation (OPG), a private corporation wholly owned by the Province of Ontario, will operate the SMRs. The Canadian Nuclear Safety Commission has already licensed the first SMR and construction has begun, with the aim of starting up power production by 2030.

CBC reports that OPG is hiring primarily (80%) Canadian contractors to build the power plants, with "European and Asian firms" getting about 15% of the spending, and only 5% going to GE Hitachi for "design and development of the power plant model, called the BWRX-300." (GE Hitachi will then presumably pay part of the money it gets to subcontractor BWX Technologies, which makes the reactor pressure vessel for the BWRX-300 reactor.)

According to data from S&P Global Market Intelligence, GE is the majority shareholder of the joint venture with Hitachi, owning perhaps 60%. Long story short, therefore, this entire $14.8 billion project will net GE Vernova at most ($14.8 billion x 5% x 60%) $444 million in revenue. (That's a calculation investors should bear in mind the next time they here a multibillion-dollar nuclear project announced in the U.S., and are wondering how much Nano Nuclear, NuScale, or Oklo might get out of it.)

That $444 million is about 1% of the revenue GE Vernova already takes in every year -- so not a lot of money in the grand scheme of things. Still, Canada's getting the ball rolling for GE Vernova, and the Ontario project is officially the first time ever a GE BWRX-300 reactor is likely to go into service. With help from Canada, GE Vernova now has momentum behind which to throw its weighty market cap and balance sheet -- and a chance to get its SMR reactors into service before Oklo or anyone else can put their own reactors online.

The battle for SMR market share has begun, and GE is already winning.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BWX Technologies. The Motley Fool recommends Ge Vernova and NuScale Power. The Motley Fool has a disclosure policy.