By Sean Rayment
Rolls-Royce’s plan to power artificial intelligence (AI) with its nuclear reactors could make the corporation the UK’s most valuable company.
The engineering firm has signed deals to provide small modular reactors (SMRs) to the UK and Czech governments.
AI has boomed in popularity since 2022, but the technology consumes vast amounts of energy, raising both practical and environmental concerns.
Rolls-Royce chief executive Tufan Erginbilgic has said the company has the “potential” to become the UK’s highest-valued business by overtaking the largest firms on the London Stock Exchange, thanks to its SMR agreements.
“There is no private company in the world with the nuclear capability we have. If we are not market leader globally, we did something wrong,” he said.
Mr Erginbilgic has overseen a tenfold increase in Rolls-Royce’s share price since taking over in January 2023.
However, he has ruled out the idea of Rolls-Royce seeking a New York listing, unlike British chip designer Arm, and as firms such as Shell and AstraZeneca have considered, in search of higher valuations.
This is despite the fact that 50 per cent of Rolls-Royce’s shareholders and customers are US-based.
“It’s not in our plan,” said Mr Erginbilgic, a Turkish energy industry veteran. “I don’t agree with the idea you can only perform in the US. That’s not true and hopefully we have demonstrated that.”
Rolls-Royce already supplies the reactors that power dozens of nuclear submarines. Mr Erginbilgic said the company has a major advantage in the future market by adapting that technology for land-based SMRs.
SMRs are not only smaller but also quicker to build than traditional nuclear plants, with costs expected to fall as more units are produced.
He estimates the world will need 400 SMRs by 2050. At a cost of up to $3bn (£2.2bn) each, that amounts to another trillion-dollar-plus market he wants and expects Rolls-Royce to dominate.
The company has signed a deal to develop six SMRs for the Czech Republic and is working on three for the UK.
But the technology remains unproven. Mr Erginbilgic conceded he could not currently point to a working example, though he expressed confidence in its future potential.
Concerns have also been raised about the demands SMRs and data centres will place on water supplies for cooling systems.
In response, US tech giants including Google, Microsoft and Meta have already signed agreements to source energy from SMRs once they become available.
While Rolls-Royce sees SMRs as central to its future, its largest business remains aircraft engines.
Already dominant in supplying engines for wide-bodied aircraft such as the Boeing 787 and Airbus A350, it now plans to break into the next generation of narrow-bodied planes, including the Boeing 737 and Airbus A320. This market is valued at $1.6tn, nine times larger than that of wide-bodied aircraft.
Rolls-Royce is currently a minor player in this sector, which has powerful incumbents. Rival Pratt & Whitney lost $8bn attempting, and failing, to break in.
The market is dominated by CFM International, a joint venture between US-based GE Aerospace and France’s Safran Aircraft Engines.
