Oklo (NYSE:OKLO) is a nuclear energy startup that is working to build fast, efficient reactors to meet the growing demand for additional power generation in the United States as AI and other technologies strain existing infrastructure.
OKLO shares have skyrocketed on a wave of enthusiasm, rising more than 1,500 percent in the last year and more than 99 percent in just the last 30 days. Why is Oklo up so much, and is the stock still a potential buy at its new highs?
What’s Sending Oklo Shares Soaring?
Oklo is currently at the convergence of several growth trends that could benefit a business of its size. The main cause of Oklo’s most recent price surge was the announcement of a strategic partnership between the US and UK to encourage the development of advanced nuclear power.
The plan includes faster regulatory processes and reciprocal regulatory approvals between the two countries, both of which could remove barriers to innovation and speed up deployment times for startups like Oklo.
Oklo is also a major beneficiary of the ongoing surge in businesses that offer power solutions for AI data centers. OpenAI CEO Sam Altman served on Oklo’s board from 2015 until earlier this year, giving the business substantial expertise when it comes to the power needs of AI. Altman’s departure also opened the business up to make deals with a large number of AI firms.
The business’s technology could also position it as a key player in the nuclear space as renewed interest in nuclear technology picks up. Of particular note is the fact that the kind of reactors Oklo plans to build can be run on recycled waste fuel, contributing to overall cost-effectiveness. The reactor technology Oklo relies on is also already well-understood and has demonstrated both safety and reliability.
Finally, Oklo is starting to make real-world progress on its nuclear ambitions. Ground was recently broken on Oklo’s first reactor in conjunction with the Department of Energy and the Idaho National Laboratory. At the same time, the business is also planning to build a fuel recycling facility in Tennessee, a project that could evolve into a collaboration with the Tennessee Valley Authority.
Altogether, Oklo is a startup that’s in the process of bringing its business model to fruition while supported by both secular economic trends and increasingly friendly government policy. These facts, combined with tremendously positive sentiment around businesses tied to AI and its energy needs, have led to an extreme pop in the price of OKLO shares.
When Could Oklo Start Generating Revenue and Earnings?
One of the largest problems investors may have with OKLO is the fact that the business isn’t even expected to start producing revenue until 2027. Profitability, meanwhile, could take until 2028 or beyond.
This could represent an obstacle for investors, as future earnings that are difficult to accurately predict must be discounted back by several years to arrive at a valuation for the business.
Much could depend on the construction schedule of Oklo’s first reactor. Though the reactor is expected to be completed in 2027, such projects have been known to run into delays. Early work on the project started in 2019, and ground was only broken earlier this month. Likewise, delays on the recycling project in Tennessee could fundamentally challenge the timeline investors are baking into their pricing assumptions if they materialize.
Is Oklo Overvalued?
With a valuation of over $20 billion before even managing to start generating revenue, there’s a reasonable argument to be made that Oklo is overvalued in spite of the promising growth trends around it. After its gigantic surge, OKLO is trading at nearly 30 times book value.
The recent price jump has also brought shares of OKLO to $140.30, more than 40 percent above the analyst consensus price target of $82.70. Even the highest price target of $150 would see only modest upside for shareholders who buy today.
While it’s possible that Oklo will eventually become profitable enough to justify its price, the combination of a surging valuation and a long time frame for revenues and profits makes the stock look quite speculative. It’s also worth keeping in mind that OKLO shares could experience significant downward volatility, as stocks that run up so quickly without fundamental changes in performance may be prone to equally sudden selloffs.
Oklo’s Risks
In addition to a speculative valuation, Oklo also appears to have regulatory risk factors to contend with. The business still has to get formal approval from the Nuclear Regulatory Commission before it can start operations. If there are delays or obstructions in the regulatory process, the business’s timeline for meaningful financial results could get pushed even further out into the future.
There’s also the strong possibility that OKLO has become caught up in what increasingly looks like a bubble around AI stocks. Even Sam Altman and Mark Zuckerberg, two of AI’s greatest evangelists, have recently acknowledged that the market as a whole may be getting overly enthusiastic about the technology and mispricing assets as a result.
If this proves to be the case and that bubble bursts in the coming year or two, it seems reasonable to suppose that a pre-revenue startup like Oklo could be disproportionately exposed to downside risk.
Is Now the Time to Buy Oklo?
Oklo is one of a few innovative nuclear startups that could have serious long-term potential and value. The problem, however, is the sheer price level the stock has reached before the business has even come close to generating revenue.
The market currently seems to be pricing in a best-case scenario for Oklo, and anything less than that could lead to substantial losses for shareholders who pay today’s prices.
Paired with potential regulatory risks and the chance of the stock being overinflated due to its connection to AI, OKLO appears to be a very risky stock to own at the moment. Though there’s likely great potential in nuclear energy innovation in the years to come, OKLO may be a stock to steer clear of for the time being.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.