Key Points
Oklo's stock has crashed more than 60% this year as the hype around its business has cooled significantly.
It may be a long time before the business has any hope of turning a profit, and investors should brace for frequent stock offerings.
Nuclear technology company Oklo (NYSE:OKLO) offers investors an intriguing growth opportunity: investing in a small stock that has tremendous upside due to its potential role in the artificial intelligence (AI) build-out, rather than investing in a behemoth such as Nvidia. That's because Oklo's powerhouses could potentially be key in providing data centers with round-the-clock energy.
The risk, however, is that it may still be years before it's generating significant revenue. Plus, rising interest rates make the cost of borrowing more challenging.
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This year, the stock has declined by more than 60%, now trading below $30. At this reduced price tag, does it make sense to buy Oklo's stock for the long haul?
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Oklo investors need to be comfortable with uncertainty and plenty of cash burn
There are some major risks with Oklo's business, as it's generating a fairly modest amount of revenue in relation to its expenses, and that's not likely to change anytime soon. It reported just $1.9 million in revenue for the September quarter, while its operating expenses totaled $84.3 million.
The reality is that as the business scales and builds more reactors, its costs are only going to rise. This creates the inevitable risk that frequent cash offerings and dilution will be the norm for investors. During the past nine months, the company has burned through $111 million from its day-to-day operations, which is more than double the roughly $49 million it used up during the same period last year.
Oklo has been raising billions from stock offerings this year, and that's likely to continue for the foreseeable future. Meanwhile, so much of the company's growth potential revolves around AI data centers, and if there are signs of a slowdown in the AI build-out, the stock could fall further; with a market cap of $5.3 billion, its valuation remains fairly high for a business at such an early stage of its growth.
The stock has a lot of potential upside, but it isn't going to be suitable for most investors
The hype around AI has fueled Oklo's massive rally in recent years. While it's down big this year, that's largely due to its inflated valuation. At its peak, the stock had a market cap of more than $27 billion.
For AI investors who are willing to take on the risk, there could be a lot of room for Oklo's stock to surge higher, but it's a long-term play that will require a great deal of patience and a high tolerance for risk.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.