After a sharp rise for some energy stocks in the fall, the recovery remained stable this week, with many nuclear and renewable energy stocks falling.
According to data provided by S&P Global Market Intelligence, NuScale Power (NYSE:SMR) fell as much as 22.3% this week, Sunnova Energy (NYSE:NOVA) was down 21.5%, and Fuel cell energy (NASDAQ:FCEL) fell 13.1% to its lowest. Shares were down 15.9%, 20.8% and 12.4% respectively as of 1:30 p.m. ET on Friday.
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Discussions in late summer and early fall focused on the data center and the enormous power requirements that companies would need to use artificial intelligence (AI) chips. Nuclear power was seen as a solution and solar power could meet some of the need, as could batteries, given the speed with which solar power plants could be built.
But the euphoria around energy demand appears to be waning and that's why NuScale and Sunnova are down this week. NuScale could still be a major player in nuclear power in the future, but it will still be years before it generates significant revenue.
Sunnova is one of the largest installers of rooftop solar, which would make sense for data centers that need dedicated, built-out power quickly, but even that was difficult because solar installations are a business very competitive.
While the conventional wisdom a few months ago was that a Federal Reserve rate cut would result in lower borrowing rates for energy developers, that has not happened as hoped. You can see in the chart below that rates have increased since September and have remained essentially flat over the past year.
Whether you're building a solar farm or a nuclear power plant, higher interest rates make the energy you produce more expensive. And renewable energy stocks often fall when rates rise. We are simply seeing a delayed reaction to the news that has been evident for weeks.
For as many hot stocks as there are today, one theme in the market is that once-hot energy stocks are failing to get the valuations they did during the pandemic. Investors have given up on financing companies that appear to lose money year after year.
FuelCell Energy saw this and even after a 1-for-30 stock split last month, shares continue to fall. As stock prices fall, it becomes even more difficult to raise capital and can be a downward spiral for any business.
The theme here is that speculation drove energy stocks higher in the fall, but that momentum was lost, leaving investors with the fundamental performance of these stocks. And you see none of them are profitable today.
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