Rolls-Royce (LSE: RR) shares surged 221% in 2023, then 90% final 12 months. Up to now in 2025, they’re up one other 7.9%, bringing the four-year return to 560%!

Nevertheless, there could possibly be one other catalyst on the horizon for this FTSE 100 high-flyer — no less than if Prime Minister Keir Starmer’s latest announcement is something to go by.

What was mentioned?

I’m speaking about small modular reactors (SMRs), after all. These are the factory-built nuclear reactors designed to be smaller, extra versatile, and cost-effective than conventional nuclear crops.

On 6 February, the federal government set out formidable plans to roll out nuclear energy throughout England and Wales. Some noteworthy plans included:

• Scrapping the set record of eight websites, which means that nuclear reactors could possibly be constructed wherever for the primary time.
• Together with SMRs in planning guidelines for the primary time, permitting companies like Rolls-Royce to construct and deploy them the place wanted.
• Reforming planning guidelines to make it simpler to set up SMRs. 

The UK constructed the world’s first full-scale nuclear energy station, however hasn’t had a brand new one since 1995. “The industry pioneered in Britain has been suffocated by regulations,” the federal government has admitted.

In future although, SMRs will likely be constructed to assist power-hungry websites like AI knowledge centres. And Starmer overtly invited tech giants like Google, Meta, and Amazon to spend money on the UK. 

Nonetheless ready

Clearly, all that is nice information for Rolls-Royce’s SMR division. It says considered one of its mini reactors offers sufficient low-carbon electrical energy to energy 1m properties for greater than 60 years.

Nevertheless, in contradiction to the PM’s go-for-it tone, the lengthy wait goes on for the 2 winners of the UK’s SMR competitors. That is anticipated to be introduced by Nice British Nuclear on or across the time of the Spring Funds Assertion, scheduled for 26 March.

Rolls-Royce is within the operating with three abroad companies. On condition that it has already been chosen by the Czech Republic and Poland to deploy fleets of SMRs, I’d be shocked if Rolls misses out. 

Then once more, governments do generally make choices that seem to contradict their very own nationwide pursuits, so it may possibly’t be dominated out.

Big potential

In keeping with market researcher IDTechEx, the worldwide SMR market might attain $72.4bn by 2033, and a whopping $295bn by 2043. Subsequently, if Rolls can also be chosen to deploy mini reactors throughout the UK, I’d count on the share price to jolt increased.

Nevertheless, it’s necessary to do not forget that SMRs gained’t be operational till no less than 2032, in keeping with authorities estimates. And nuclear vitality has its downsides, together with coping with the radioactive waste.

Within the meantime, Rolls-Royce will likely be judged on how its core engine enterprise performs. The inventory is at the moment buying and selling at practically 29 occasions this 12 months’s forecast earnings. That valuation doesn’t go away a lot room for error, which means the agency must hold hitting or surpassing its formidable development targets.

If earnings are available in lighter than anticipated, the inventory might unload sharply.

Purchase extra shares?

I first invested in Rolls shares in 2023 once they had been at 149p, then added at 477p final 12 months. With the inventory now at 613p, I’m proud of that.

Have been Rolls-Royce to undergo a setback although, I’d think about shopping for extra shares. I’m bullish on the long-term development of the worldwide plane market and the potential of SMRs.