McKinsey estimates that nearly $7 trillion will be spent on data centers by the end of the decade.
Oklo doesn’t generate any revenue today, and it may be a long time before it turns a profit.
Its valuation may seem a bit high for an unproven business.
Oklo (NYSE: OKLO) is a stock that investors see plenty of potential in, as the nuclear technology company plans to build powerhouses that can be built next to data centers. One of the companies it has partnered with is social media giant Meta Platforms, with the two recently announcing an agreement that will involve Oklo developing a 1.2 gigawatt power campus in Ohio.
That’s just one example of the potential growth opportunities Oklo can tap into. And they’ll continue to pop up as hyperscalers invest more into data centers and expand their artificial intelligence (AI) capabilities. There is, however, a risk that comes with investing in Oklo today, given that it’s still in the very early stages of its growth. And it’s due to those concerns that the stock has been struggling of late — it’s down about 60% in just the past six months.
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Is it worth investing in Oklo stock today, given the risk that it possesses?
Image source: Getty Images.
If Oklo’s powerhouses can play a key role in helping to solve the need for rising energy due to AI and more data centers being built around the world, the stock could indeed have considerable upside. Data centers are in high demand due to AI, and analysts at McKinsey project that by 2030, the required investment in them will total approximately $6.7 trillion, as tech giants continue to spend heavily on all things AI-related.
Now, imagine Oklo’s powerhouses providing energy to most or even some of these data centers. It’s easy to see now how the business could be much more valuable in the future than its current $7.9 billion market cap. The opportunity is massive due to AI, and with its powerhouses being relatively small in size and offering clean energy solutions, there’s no shortage of potential for Oklo.
Investing in a company that’s in its early growth stages is going to inevitably come with risk. For Oklo, however, the key question is whether there’s simply too much risk today. The company doesn’t generate any money, and its first powerhouse may not be up and running for at least another year. Its ability to scale quickly, without heavily burning through cash along the way, will be a big test for the business.
The opportunity is massive for the company, but its valuation is already a bit high for what’s still an unproven business today. You might miss out on some gains by waiting, but I think that’s the best approach with the stock today. If it proves to be the real deal, you can still profit from huge gains down the road. But by rushing in and buying the stock now, you’ll be taking on significant risk.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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