Cathie Wood’s Bet on Nuclear Energy (OKLO Stock)
Cathie Wood’s Bet on Nuclear Energy (OKLO Stock)
Video: A review of Oklo's business, Cathie Wood's latest investment.
Transcript
Cathie Wood, the CEO behind Ark Invest, has begun to place her bets on the nuclear energy revolution.
The ARK Autonomous Technology and Robotics ETF (ARKQ), has recently purchased around $2.4 million worth of shares in Oklo, a nuclear energy startup. So, it seems Cathie has chosen her horse to bet on for the upcoming nuclear renaissance.
I covered the stock briefly in a previous video explaining why nuclear stocks were skyrocketing, but in this video, we’ll discuss Oklo in greater detail, reviewing the company’s fundamentals and potential issues I think it might face in the future.
Cathie Wood has made various investments in Artificial Intelligence, and buying stock in Oklo is likely a proxy investment based on that belief in AI.
The energy demands of the data centers used for AI are growing rapidly, and the tech industry is pushing nuclear energy as a potential solution for providing reliable, baseload power to meet rising demand.
We’ll touch more on Oklo’s management team later in the video, but Sam Altman, the CEO of OpenAI, is also the chairman of Oklo, and sits on the board of directors.
So, having a personality like Sam Altman on board likely opens up a variety of opportunities for the company.
To provide some context, before discussing Oklo’s technology, we must first define what nuclear reactors types are even out there. A large, conventional nuclear reactor that we all think of can typically generate 700 megawatts or more. But a small modular reactor is smaller in scale at around a max of 300 megawatts, and modular, so they can theoretically be mass-produced because reactor components can be pre-assembled. Lastly, there are also microreactors, which could generate around 10 megawatts of power, which would be so small that they could fit in a truck and be transported around.
Oklo is developing what could be defined as micro modular reactors. They only expect their reactor design to provide around 15 to 100 megawatts of power.
Their tech is based on the Experimental Breeder Reactor 2, designed by the US government and operated from 1964 to 1994. It was a 20-megawatt design with inherent benefits like localization to the power grid and commercial demand, flexibility to use fresh or recycled nuclear fuel, increased safety, and competitive operating characteristics.
The Aurora powerhouse, Oklo’s reactor technology, is designed to primarily use non-nuclear supply chain components which will allow them to reduce costs since spinning up the nuclear industry in the United States will take time.
In a direct comparison to traditional nuclear reactor technology and business models, Aurora is estimated to cost less than $60 million to build, compared to billions of dollars for larger reactors. Other benefits include low land usage, proximity to customers, fewer parts needed, passive safety systems so the reactor can safely shut itself down without human intervention if something goes wrong, and a manufacturing timeline of less than one year.
These various benefits allow for lower capex investments, so Oklo has decided to build and operate all of its reactors, so it doesn’t need to license out the technology like other companies do. Oklo wants to sign long-term electricity generation agreements with companies near the reactor locations.
So, looking at the unit economics, the first-of-a-kind 15-megawatt reactor would cost approximately $70 million to build. After that, economies of scale would start to kick in, and they would expect the reactors to cost around $57 million to build. Annual revenues would be $13 million, and expenses would be $5 million or lower. Annual cash flows would come out to around $8 to $10 million. The 50-megawatt reactor would be similar, but just larger in size and energy output, of course, so revenues and ultimately cash flows would be higher.
Oklo also includes a cash flow sensitivity model based on the number of 15 or 50-megawatt reactors being deployed. Once they deploy around 10 reactors of either variation, you start to cross over into that $100 million and above cash flow range.
Which would be great to see, but it will take a significant amount of time to get there because their first project will likely get built with the Idaho National Laboratory in 2027. I wouldn’t be surprised if that ends up extending later. Timelines tend to get stretched with large-scale projects or supply chain situations like Oklo, so I would bake that into any investor expectations.
As we know, anything that involves the government almost always leads to delays.
Oklo has a total pipeline of 1,350 megawatts of non-binding letters of intent for reactors across six states. Potential customers include Centrus Energy, Diamondback Energy, Wyoming Hyperscale, Equinix, and the United States Air Force.
The US is actually trying to help with regulatory problems with the ADVANCE Act. As Oklo points out, the main goal of that bill was to reduce regulatory costs and timelines for licensing new nuclear reactors and their designs.
Oklo estimates that the legislation will cut down both timelines and fees by 50%. There’s also the potential to receive some financial awards that would reduce costs further.
Additionally, around $900 million in funding was allocated to SMR technology in another bill, and the Inflation Reduction Act provided various benefits to the nuclear industry. The IRA provided $700 million in funding for nuclear fuel, $250 billion to the Department of Energy Loan Program, and potential tax credits.
The funding for SMRs will likely not apply to Oklo since their reactors are more like microreactors in size, but there are other opportunities for subsidies.
Another benefit of Oklo’s technology is that their reactor design can actually use recycled nuclear waste as fuel. Beyond just use in their reactors, Oklo is pursuing spent fuel recycling as a separate market vertical to generate additional revenue.
The company’s design plans for a recycling facility have been submitted to the Nuclear Regulatory Commission. So, this is another avenue for additional upside that other public companies in this space aren’t pursuing.
If Oklo successfully builds some fuel recycling facilities, the Department of Energy could provide various financial awards to help with funding. So, that could help with building out those facilities as well.
Moving onto the management team, the co-founders Jacob Dewitte and Caroline Cochran received either PhDs or Master’s degrees in nuclear engineering at MIT. At that point, they started Oklo and have been working on building up the company for over a decade now.
As I mentioned before, Sam Altman is on the board, which could lead to interesting connections in the technology space, and the Board of Directors has executives in the energy, electricity, or military backgrounds.
Out of the current 88 employees, 12 have PhDs, and 36 have at least a Masters in Engineering or Science. So, around half of the workforce has an educational background in a related field. Of course, regulatory experts and former NRC staff have also joined to help with the regulatory work with the US government.
With that said, I’m not sure they have experienced members who have built a nuclear power plant or been involved in those projects, in some variety. Ideally, you’d like to see that level of expertise in a company like this, but that doesn’t mean they won’t succeed. Lower-level employees could have that expertise, but I’m just going off of the upper management here.
For some context, Oklo went public via an SPAC merger with AltC Acquisition Corporation, which put the company in a great financial position. Including cash and marketable securities, Oklo has around $300 million in total assets, so they won’t need to raise money for quite some time.
Oklo expects their burn rate to be around $40 to $50 million in 2024, which is $20 to $30 million more than what they thought it would be in 2023.
Their total shares outstanding is around 122 million. 55 million of those shares are under varied lock-up periods. Important insiders are locked up for three years, with many of the VC investors locked up for 180 days.
Those shares will be free trading in November, since the SPAC business combination closed on May 9th. That will be a month to watch as those shares could potentially hit the public markets.
Now, the shares under a three-year lock-up could also enter the markets early if Oklo hit triggers at $12, $14, and $16 for a third of the trading days in an approximately two-month period. Again, that’s another aspect to consider and look out for.
So, we can see why Cathie Wood would start to pick up shares in Oklo:
They’re the closest of the three public nuclear reactor startups to building a potential plant, with a timeline for 2027.
Their design is less capital-intensive than your average small modular reactor since they went with a micro design.
They’re cashed up with $300 million in the bank.
Sam Altman is involved.
There’s bipartisan support for nuclear from the US government.
I can see why Ark Invest would choose Oklo. It’s the best of the three public options. With that said, I fear that the company will face the same issues I mentioned in my last video on these nuclear reactor companies.
Oklo is already spending around $50 million annually, and those costs will likely only increase over the next few years. They already doubled over what they expected last year. I would be surprised if they managed to build their first facility in Idaho on time and on budget. But even if we go off of their timelines, then it will take Oklo at least three years to generate any real revenues. That assumes everything goes smoothly.
We also have to hope there aren’t any lawsuits that slow down progress further. The environmentalist crowd could do whatever they can to try to stop Oklo from building a new reactor when they hear about it. The not in my backyard crowd could be a problem for companies like this.
So, of course, make your own investment decisions, but those are my concerns. I might consider taking another look at the company in a few years, but I feel no need to take a stab at Oklo with any significant catalysts likely years away.