Rolls-Royce (LSE: RR.) shares have had a spectacular three years. After rising roughly six-fold between the start of 2023 and the end of 2024, they nearly doubled in price again in 2025.
Can the shares do it again in 2026? Here are my thoughts.
I’m bullish… in the long run
Taking a long-term view on Rolls-Royce, I’m quite bullish. There are several reasons why.
One is the company’s exposure to the nuclear power industry. Across the world, both governments and companies (especially Big Tech companies) are looking at how they can use nuclear power to generate clean, reliable energy. This bodes well for Rolls-Royce.
It has significant experience in this area of energy (it’s been the sole provider of nuclear propulsion for the UK’s Royal Navy for over 60 years) and looking ahead, it’s aiming to be a global leader in Small Modular Reactors (SMRs), small nuclear reactors that can be positioned closer to the grid.
Note that in December, Nvidia CEO Jensen Huang said he expects to see “a bunch of SMRs” powering data centres within six to seven years. Speaking on the Joe Rogan Experience, Huang identified energy as the primary bottleneck for the next phase of AI growth and said that hyperscalers will most likely install and run their own SMRs in the coming years.
I’ll point out however, that there are a few companies operating in the SMR space. So there’s no guarantee Rolls-Royce will end up being a global leader here (or that the technology will even take off).
Another reason I’m bullish is the company’s exposure to defence. Last year, NATO countries committed to spending 5% of GDP on defence by 2035, up from 2%. This also bodes well for the Footsie company because it offers a range of defence products including engines for fighter jets, helicopters and ships.
Could the shares pause for breath in 2026?
Having said all that, I reckon there’s a decent chance the shares take a breather in 2026. I wouldn’t be surprised if 2026 was a ‘consolidation’ year. As I noted at the top, the shares have experienced three years of huge gains. After that kind of run, a period of consolidation is to be expected at some point (no stock runs higher forever).
It may already have started. Recently, the stock’s lost its momentum a little (in Q4 it actually fell). As for the valuation, it’s pretty high right now – the forward-looking price-to-earnings (P/E) using the 2026 earnings forecast ratio is about 35 (higher than Nvidia’s).
A year of consolidation would also give the stock some time to grow into its valuation. Ultimately, it would be very healthy for the shares.
Better opportunities right now?
Now, if an investor already owns the shares I reckon they’re worth holding onto, given the potential in the long run. However, if someone’s looking to put fresh capital to work today, I think there are probably better opportunities to consider in the near term.
