Cathie Wood’s Bet on Nuclear Energy
A review of Oklo's business fundamentals.
Cathie Wood, the CEO of Ark Invest, has begun to place her bets on the nuclear energy revolution.
The ARK Autonomous Technology and Robotics ETF (ARKQ) purchased around $2.4 million worth of shares in OKLO back in July.
Oklo is a developer of small modular reactor (SMR) nuclear technology that went public through a SPAC merger with AltC Acquisition Corp in May.
Wood has made various investments in the artificial intelligence space, and buying Oklo is likely a proxy investment based on that trend.
Energy demand is set to grow rapidly as data center expansion and industrialization continues across the United States and the globe.
The tech industry is pushing nuclear energy as a potential solution for providing reliable, baseload power.
We’ll touch more on Oklo’s management team later, 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 the board likely opens up various opportunities with potential customers in the tech industry.
Types of Nuclear Reactors
Nuclear reactors can be split into three types based on size:
A large, conventional nuclear reactor that we all think of typically generates 700 MWs of power or more
Small modular reactors (SMR) are smaller in scale at around a max of 300 MW, and modular so components can be pre-assembled.
Micro reactors are the smallest of the three, at approximately 10 MW or less. This makes them small enough to transport around by truck.
Oklo’s Technology
Oklo is developing stationary small modular reactors with less power output. They only expect their reactor design to provide around 15 to 100 MW of power.
Their tech is based on the Experimental Breeder Reactor II, designed by the US government and operated from 1964 to 1994. It was a 20-megawatt design with inherent benefits such as:
Localization to the power grid and commercial demand.
Flexibility to use fresh or recycled nuclear fuel.
Increased safety.
The Aurora powerhouse, Oklo’s reactor technology, is designed to primarily use non-nuclear supply chain components which will allow them to reduce costs. Utilizing existing supply chains rather than relying on building out the nuclear supply chain in the United States again.
Unit Economics
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. It’s smaller size allows for significantly reduced construction times, among other benefits.
Given the lower capital expenditure required to build these plants… Oklo has decided to build and operate all of their reactors themselves. Their competitors have often relied on licensing their technology to avoid significant costs.
So, looking at the unit economics:
The first-of-a-kind 15 MW 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.
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, so expenses, revenues and ultimately cash flows would be higher.
Oklo also includes a cash flow sensitivity model based on the number of 15 or 50 MW reactors deployed. It will take a few larger reactors to begin justifying their valuation on cash flows alone.
Project Pipeline
It will take some time to get there… because their first project will likely be built with the Idaho National Laboratory in 2027. I wouldn’t be surprised if that ends up getting extended.
Timelines tend to get stretched with large-scale projects or supply chain situations like Oklo, so I would bake that into any investor expectations.
Oklo has a total pipeline of 1,350 MW of non-binding LOI or MOUs for reactors across six states. Potential customers include Centrus Energy, Diamondback Energy, Wyoming Hyperscale, Equinix, and the United States Air Force.
Regulatory Aid
The US is actually trying to help with regulatory delays, among other 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.
It’s unclear how much capital Oklo will receive from these government bills, if any, but it’s great to see bipartisan support nonetheless.
Recycled Fuel Market Vertical
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.
Management Team
The co-founders, Jacob Dewitte and Caroline Cochran, received 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 earlier, 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. 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.
Financial Position
Oklo’s SPAC merger 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.
With total liabilities of $30 million, they’re in the best position of the three public nuclear startups (OKLO, SMR, and NNE).
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. So, costs are already higher than they originally expected.
Share Structure
Their total shares outstanding is around 122 million. 55 million of those shares are under varied lock-up periods. Portions of important insider share ownership are locked up for staggered stages, up to three years. Many of the VC investors locked up for 180 days.
Those VC 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.
My Concerns
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.
There’s bipartisan support for nuclear from the US government.
It’s the best of the three public options. With that said, I fear that all of the public nuclear startups will face similar issues soon enough.
Oklo does have significant cash reserves, but they’re already spending around $50 million annually, and those costs will likely only increase over the next few years.
They already doubled costs in comparison to 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 estimates, then it will take Oklo around three years to generate any real revenues. That assumes everything goes smoothly.
NuScale Power (SMR) had their project in Utah terminated after cost estimates continued to increase. In 2015, they assumed the project would cost $3 billion, but by 2023, it was estimated to cost $9.3 billion…
We also have to hope there aren’t any lawsuits that slow down progress further. I have a sneaking suspicion that the not-in-my-backyard (NIMBY) crowd will have it out for companies like Oklo. The last thing a startup company needs is endless litigation that slowly bankrupts the firm.
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 commercialization likely years away.
Disclaimer
The owner of Green Investing is not a licensed investment professional. Nothing produced under the Green Investing brand should be construed as investment advice. My content is made for entertainment and educational purposes. Do your own research.