Why I'm Not Chasing NuScale -- Here's What I'm Buying Instead

Brookfield Renewable is already cashing in on the trend NuScale hopes to eventually capture.

I have no interest in chasing NuScale (NYSE: SMR) by adding the once-high-flying small modular reactor (SMR) developer to my portfolio. It's just too speculative for me. Instead, I'm buying Brookfield Renewable (NYSE: BEPC) (NYSE : BEP), which has highly visible growth and underappreciated upside amid the global nuclear energy resurgence.

NuScale had been one of the hottest names in the energy sector, running up more than 400% at one point last year. The company's potentially transformative SMR technology could eventually help meet some of the world's booming power needs. However, reality has since set in that NuScale is a much longer-term story, causing the nuclear energy stock to crash by more than 80% from its peak. Despite its much lower current valuation, I still have no desire to chase NuScale, given all that Brookfield currently offers.

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Let me start by saying that I think NuScale holds tremendous promise. The company's proprietary SMR technology has the potential to be a game changer. It could enable the world to deploy emissions-free nuclear energy more rapidly in the future. That's crucial, given the immense power needs of AI data centers. According to several estimates, U.S. power demand will grow at a 4% compound annual rate through 2030, a significant surge compared with the roughly flat demand growth over the last two decades.

However, my issue with NuScale is that it's a much longer-term story. It doesn't currently generate much revenue (only $75,000 in the second quarter, down from over $8 million in the prior-year period). It's still a long way from generating meaningful revenue since it has yet to successfully build a commercial SMR. It's currently working to sign a power purchase agreement (PPA) to support a large-scale 6-gigawatt (GW) SMR build-out, which would be the largest in U.S. history. That deal could enable NuScale to generate more than $1 billion in revenue from this project by 2030 . While that's a lot of potential, there's significant risk, including the risk that it never signs the deal or doesn't deliver as anticipated.

Whereas NuScale offers the promise of significant revenue potential in 2030, Brookfield Renewable is generating meaningful and rapidly growing profits now. The leading global renewable energy and sustainable solutions platform generated $1.7 billion of revenue in the second quarter alone, along with over $400 million in funds from operations (FFO). Its FFO per share grew by 11%. That's real value growth accruing to shareholders right now, not the potential for meaningful sales several years out. It firmly supports the company's ability to pay an attractive dividend now (4.7% current yield).

Meanwhile, Brookfield Renewable has significant visibility into its growth for the next five years. It has a vast portfolio of renewable power assets (47 GW of current operating capacity) secured by long-term PPAs that link rates to inflation. Additionally, it has a massive development pipeline (over 200 GW) to support its growth, backing its target to ramp up its annual new power capacity delivery run rate to 10 GW starting next year. Brookfield also has a strong financial profile to support acquisitions (it recently bought Aypa, the largest stand-alone battery energy storage platform in North America, for $3 billion). Those growth catalysts support its expectation of delivering more than 10% annual FFO per share growth through 2031. That will enable it to grow its dividend within its 5%-9% annual target range. That's real value growth continuing to accrue for shareholders.