Why NuScale Power Stock Dropped 8% on Tuesday

Lack of profits plus a possible challenge to its technology make NuScale Power a risky investment.

Shares of NuScale Power (SMR -6.72%) slid 8.1% through 11 a.m. ET on Tuesday on some disconcerting news out of China. NuScale bills itself as the leader in nuclear technology for small modular reactors (SMRs). And, according to management, its SMR is the only one to be certified by the U.S. Nuclear Regulatory Commission. 

That’s fine as long as nuclear fission, used in SMRs, remains the cutting-edge technology. But as The Wall Street Journal reported this morning, there’s a new technology on the horizon, nuclear fusion, and China is taking the lead in the race to commercialize it.

Will China make NuScale obsolete?

According to the Journal, China went from having “almost nothing” of a nuclear fusion program 10 years ago to arguably leading the U.S. today. Nuclear fusion has always seemed to be just a decade away (it was 10 years ago that I first wrote about how Lockheed Martin thought it was about to solve the fusion puzzle).

Image source: Getty Images.

But China is now racing to make it a reality. It is investing twice as much money and has 10 times as many PhDs in fusion science and engineering as the U.S., the Journal reports.

If it succeeds, cheap energy generated from nuclear fusion could potentially make nuclear fission reactors of the kind that NuScale is developing obsolete.

Is NuScale Power stock a sell?

It’s possible that China will not succeed. Scientists have been working on the fusion problem since the 1950s without success, which suggests that China also will fail — and that cheap nuclear fusion energy is a pipe dream.

Still, there’s a chance that fusion will work. And with China and the U.S. competing to make it happen, NuScale is now in a race to turn profitable before its technology becomes obsolete.

With analysts forecasting NuScale will remain unprofitable well into the 2030s, time is not on its side.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and NuScale Power. The Motley Fool has a disclosure policy.

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