Rolls-Royce SMR Gets Support, But Faces Competition

As demand for carbon-neutral energy picks up in the era of gigawatt data centres, Rolls-Royce's recent award for SMRs could mean it has the edge in making the technology commercially viable.

No Ceiling in Sight

Rolls-Royce shares are around the £900 mark, scoring a 6-year high as the company's turnaround continues to power investor interest. The new price surge comes after the UK announced that its energy unit has been to build small nuclear reactors (SMRs). The £2.5 billion initiative aims to accelerate the development of this new technology, bringing nuclear reactors closer to their point of demand, improving safety, and addressing the regulatory issues that have stalled the construction of major new nuclear power plants.

Rolls-Royce SMR operates in a competitive environment, with multiple companies in the US attempting to bring small modular reactors (SMRs) to market, as power grids in America and Europe prepare for additional . The proliferation of AI has analysts by more than 160% in less than five years. The relatively constant energy demand from data centres, as well as their scale, makes them ideally suited to be powered by small nuclear reactors.

Finding the Winner

Oracle and Microsoft are already working on ways to , while companies such as NextEra work on developing tailor-made reactors for data centres. The deal that RR signed is much broader in scope than just data centres, as the UK faces an energy crunch with moving away from Russian sources of fossil fuels and low levels of sunlight. The support of the British government could help streamline the approval process for SMRs, putting RR ahead of its competitors for the moment.

The US has not yet approved any of the new SMR proposals. A commercially viable, functioning reactor as a proof of concept in the UK could make Rolls-Royce a compelling supplier for corporations increasingly desperate to supply energy and . On the other hand, SMRs present their own challenges. Despite arguably being at the forefront of development, Rolls-Royce says it . Meanwhile, the , with a focus on helping American producers accelerate delivery. Rolls-Royce has a chance to be the first in the market, but it can't rest on its laurels.

RR Needs 23% Upside to Reach Cup ‘Lip’

The share price of Rolls-Royce currently trades at £895, placing it a hundred pounds shy of the £1000 round resistance and two hundred pounds from the £1100 peak reached in 2018. The long-term view reveals that a potential Cup & Handle (C&H) formation might be at play, with the Cup from £66 to £1100 now just 23% away from its target ‘lip’. Although a double top at the ‘lip’ would indicate the formation of the ‘handle’, it might be a short-lived pullback down to £630 should £820 fail to hold. In the short term, attention goes to the RSI divergence, which implies a potential short- or longer-term trend reversal.

Source: SpreadEx / Rolls-Royce Holdings

Key Takeaways

Rolls-Royce’s £2.5 billion contract award could benefit the company by meeting the surging demand for carbon-neutral energy from data centres. However, it faces competition from the US, which the Trump Administration is aggressively pursuing but has yet to approve any SMR proposals. Despite being at the forefront of development, Rolls-Royce says it won't be able to deliver its first reactor until 2032. Still, a potential Cup & Handle (C&H) formation might be at play, suggesting further upside potential.