Shares of Oklo have skyrocketed by 1,000% over the last year.
The companies that have so far benefited the most during the artificial intelligence (AI) revolution straddle the line between hardware and software. Yet as AI applications grow increasingly complex, the conversation is beginning to expand beyond chips, data centers, and algorithms. The need for massive compute power has brought a new factor into focus: reliable energy.
As AI models become larger and more advanced, the resources required to build and run them are becoming increasingly demanding. These dynamics have made energy more than just a supporting element of the AI story; it’s swiftly emerging as a mission-critical chapter.
Among the various sources of power, nuclear energy has gained particular attention from growth investors. Its efficiency, reliability, and relatively low cost position it as a compelling alternative to traditional energy sources.
Right now, one of the most prominent names in the nuclear energy space is Oklo (OKLO -0.04%), whose stock has surged more than 1,000% over just the last year. The question now is whether Oklo’s parabolic rise signals peak enthusiasm, or if there’s still room for the rally to run.
Oklo’s valuation is built on hope, hype, and FOMO
Before becoming a writer, I spent a decade as a financial analyst focused on mergers and acquisitions (M&A) and capital raises for venture-backed and private equity-backed companies. From time to time, our team would evaluate early-stage businesses that had not yet achieved meaningful commercial traction. These companies often had little to no revenue and unpredictable profit outlooks.
In such situations, traditional valuation methods fell short, and we had to adopt more creative approaches. By analyzing comparable businesses in adjacent industries and conducting a comprehensive assessment of the client’s total addressable market (TAM), we could develop a framework to estimate value based on potential upside rather than actual performance.
Even then, sophisticated investors understood the speculative nature of these exercises and treated our analyses with appropriate caution. I think the same mindset applies to Oklo.
Today, the company generates no revenue, yet continues to incur significant research and development (R&D) costs and capital expenditures (capex) to advance its modular reactor technology. Despite the fact that Oklo is not expected to generate revenue until 2027, investors currently assign a market value of $10.7 billion to the company.
Image source: Getty Images.
Oklo’s recent steps have been dilutive to shareholders
For the six months ended June 30, Oklo reported $45.9 million in operating expenses. With roughly $683 million in cash and marketable securities on the balance sheet, the company appears to have ample liquidity to fund operations for the foreseeable future. On the surface, the company’s robust runway might suggest little immediate need for additional capital.
However, the company’s actions tell a different story. In June, Oklo filed an 8-K detailing an offering of 6,666,667 shares, with underwriters choosing to exercise their option to purchase an additional 1,000,000 shares. The transaction ultimately raised approximately $441 million in net proceeds. While this provides Oklo with a substantial cushion, it came at the cost of dilution to existing shareholders.
In my eyes, the decision to raise capital at a frothy valuation highlights key aspects of the company’s financing strategy. Management’s willingness to dilute shareholders in the near term in order to secure the necessary financial resources to advance its product roadmap could set a precedent.
If market conditions remain opportunistic and hype narratives keep Oklo stock elevated, the company may be inclined to issue subsequent offerings to augment its capital position.
Where will Oklo stock be trading 1 year from now?
At present, Wall Street consensus estimates peg Oklo’s 2027 revenue at just $14 million. Against today’s market capitalization, that implies a forward price-to-sales (P/S) multiple of 764 — an unjustifiable, overstretched figure.
OKLO Revenue Estimates for 2 Fiscal Years Ahead data by YCharts
Even if Oklo dramatically outperforms expectations and delivers $500 million in revenue by 2027, the company’s current valuation would translate to more than 20 times its future sales. That kind of multiple is more acceptable for a high-growth software business, but is a bit excessive for a capital-intensive clean-energy operation that remains years away from commercial scale.
These extremes suggest that investors have priced Oklo to perfection. A more reasonable multiple for an early-stage green energy business would be closer to 5 times, which would imply a valuation of about $2.5 billion. That’s roughly 77% below today’s levels, or a share price of about $17 versus the current $72.
In my view, it’s only a matter of time before reality sets in. Over the next year, Oklo stock could face significant downward pressure as investor enthusiasm collides with the realities of the underlying business fundamentals.
