NuScale Power(NYSE: SMR) is working on an exciting concept to provide the world with safe carbon-free energy. But NuScale's efforts and actions are being heavily influenced by another company, Fluor(NYSE: FLR).
Here's what you need to know about the relationship between NuScale and Fluor before you buy stock in the nuclear power start-up.
What is NuScale trying to build?
NuSale's big idea is to mass-produce small modular nuclear power plants. The hope is that doing so will keep costs low, increase the safety of nuclear power, and allow the units to be used more easily in more locations. Adding to the allure, multiple units can be modularly assembled to create a single large nuclear power plant, if desired. It is a very interesting concept.
Image source: Getty Images.
So far, NuScale has been working with one potential customer with the hope of delivering up to 24 units to power two data centers, one in Ohio and another in Pennsylvania. It has yet to actually produce even one of its modular nuclear power plants at this point. But there's great promise for the technology given the huge electricity demand from data centers and the increasing shift toward carbon-free energy sources.
But here's something interesting you'll find if you read NuScale's 2023 10-K. Under a section titled "related party transactions," NuScale states that, "For the years ended Dec. 31, 2023, and 2022, revenue earned from Fluor accounted for 74.1% and 72.4%, respectively, of total revenue." So, at this point, one company accounts for roughly three-quarters of NuScale's revenue.
NuScale is kind of just a part of Fluor
The importance of Fluor to NuScale's top line shouldn't be all that surprising once you understand that, in the business overview section of the 10-K, NuScale explains, "Fluor, a leading global engineering, procurement and construction ("EPC") firm, is the majority stockholder in NuScale." In the risks section, management states, "Our commercialization strategy relies on our relationship with Fluor." When it comes to NuScale, Fluor is running the show in more ways than one.
This isn't a bad thing, per se. Fluor is a leader in the construction and engineering space. It has a market cap of roughly $7 billion, which isn't huge but it certainly isn't tiny, either. In fact, given NuScale's sub-$1 billion market cap, it is kind of nice to know the nuclear power start-up has an older brother looking out for it.
The arrangement could be highly valuable for Fluor if NuScale's technology works out. Presumably, the construction and engineering company hopes to be the company that develops projects that use NuScale's small-scale nuclear power units. That actually solves a big problem for NuScale, which can offer a ready solution to potential customers looking to develop a nuclear power project. But, and this is an important caveat, NuScale probably won't want to upset its relationship with Fluor and that could lead to decisions that are better for Fluor than for NuScale shareholders.
Less of an issue today than, perhaps, tomorrow
Right now having Fluor around in such a material way seems pretty valuable. Fluor is, basically, supporting NuScale as it looks to get its business up and running. So investors probably shouldn't worry too much. Assuming NuScale manages to develop its business, however, the relationship with Fluor may take on a more decisive role for shareholders. So, at the moment, potential investors just need to understand the importance of Fluor. But someday they might need to start paying extra close attention.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
