Rolls-Royce (LSE: RR) shares surged 221% in 2023, then 90% last year. So far in 2025, they’re up another 7.9%, bringing the four-year return to 560%!
However, there could be another catalyst on the horizon for this FTSE 100 high-flyer — at least if Prime Minister Keir Starmer’s recent announcement is anything to go by.
What was said?
I’m talking about small modular reactors (SMRs), of course. These are the factory-built nuclear reactors designed to be smaller, more flexible, and cost-effective than traditional nuclear plants.
On 6 February, the government set out ambitious plans to roll out nuclear power across England and Wales. Some noteworthy plans included:
- Scrapping the set list of eight sites, meaning that nuclear reactors could be built anywhere for the first time.
- Including SMRs in planning rules for the first time, allowing firms like Rolls-Royce to build and deploy them where needed.
- Reforming planning rules to make it easier to set up SMRs.
The UK built the world’s first full-scale nuclear power station, but hasn’t had a new one since 1995. “The industry pioneered in Britain has been suffocated by regulations,” the government has admitted.
In future though, SMRs will be built to support power-hungry sites like AI data centres. And Starmer openly invited tech giants like Google, Meta, and Amazon to invest in the UK.
Still waiting
Obviously, all this is great news for Rolls-Royce’s SMR division. It says one of its mini reactors provides enough low-carbon electricity to power 1m homes for more than 60 years.
However, in contradiction to the PM’s go-for-it tone, the long wait goes on for the two winners of the UK’s SMR competition. This is expected to be announced by Great British Nuclear on or around the time of the Spring Budget Statement, scheduled for 26 March.
Rolls-Royce is in the running with three overseas firms. Given that it has already been chosen by the Czech Republic and Poland to deploy fleets of SMRs, I’d be surprised if Rolls misses out.
Then again, governments do sometimes make decisions that appear to contradict their own national interests, so it can’t be ruled out.
Huge potential
According to market researcher IDTechEx, the global SMR market could reach $72.4bn by 2033, and a whopping $295bn by 2043. Therefore, if Rolls is also selected to deploy mini reactors across the UK, I’d expect the share price to jolt higher.
However, it’s important to remember that SMRs won’t be operational until at least 2032, according to government estimates. And nuclear energy has its downsides, including dealing with the radioactive waste.
In the meantime, Rolls-Royce will be judged on how its core engine business performs. The stock is currently trading at nearly 29 times this year’s forecast earnings. That valuation doesn’t leave much room for error, meaning the firm will have to keep hitting or surpassing its ambitious growth targets.
If earnings come in lighter than expected, the stock could sell off sharply.
Buy more shares?
I first invested in Rolls shares in 2023 when they were at 149p, then added at 477p last year. With the stock now at 613p, I’m happy with that.
Were Rolls-Royce to suffer a setback though, I’d consider buying more shares. I’m bullish on the long-term growth of the global aircraft market and the potential of SMRs.
