Oklo's and NuScale's stocks have surged on unrealistic expectations, BofA warns

Bank of America analyst Dimple Gosai downgraded Oklo Inc. to Neutral from Buy and NuScale Power Corp. to Underperform from Neutral, citing "unrealistic" valuations for the nuclear energy stocks. Despite long-term optimism for the sector, Gosai warned that current valuations, which have seen Oklo surge over 400% and NuScale over 100% year-to-date, reflect overly bullish deployment assumptions for small modular reactors and leave little room for error, prompting negative market reactions for both stocks.

Analysis

A Bank of America research note flags significant valuation risk in the nuclear energy sector, specifically for Oklo Inc. (OKLO) and NuScale Power Corp. (SMR), leading to ratings downgrades. Despite long-term optimism for nuclear power driven by AI-related energy demand, the recent stock surges—over 400% for OKLO and 100% for SMR year-to-date—have pushed valuations to levels deemed "unrealistic." The analysis highlights forward multiples of 16.9x EV/2032 EBITDA for OKLO and 11.9x for SMR, which bake in overly bullish deployment assumptions. Furthermore, the stocks' implied discount rates of 10.9% and 6.2% respectively are substantially below sector norms, indicating that the market is pricing in minimal execution risk. The report also raises concerns about the health of the rally, pointing to market structure indicators of a late-stage trade, including elevated retail participation, low active ownership (1-2%), and high passive ownership (15-20%). While BofA prefers Oklo’s more capital-intensive, vertically integrated model for de-risking early projects over NuScale's partnership-dependent approach, the price objectives for both stocks—$117 for OKLO and $34 for SMR—suggest minimal upside from their recent trading levels, reflecting the view that current valuations leave no room for error.

Key Decisions for Investors

• Investors holding Oklo and NuScale should recognize that current valuations reflect near-perfect execution and very low risk, making the stocks highly vulnerable to any delays in deployment or shifts in market sentiment.
• Given the indicators of a crowded, late-stage momentum trade, such as high retail and passive ownership, it is prudent to consider trimming exposure or implementing hedging strategies to protect against a potential sharp correction.
• Monitor the distinct business models, as Oklo’s vertically integrated approach is favored for near-term de-risking, but NuScale's lower capital intensity could become advantageous if it successfully manages counterparty risk.
• Note the BofA price targets, which imply limited upside for Oklo (Neutral, $117 target) and downside for NuScale (Underperform, $34 target), suggesting that initiating new long positions at these levels carries a poor risk-reward profile.