Nuclear-powered AI can make Rolls-Royce UK's biggest company, Boss says

The plan to drive artificial intelligence (AI) in Rolls-Royce's nuclear reactors could become the UK's most valuable company, Boss said.

The engineering company has signed a deal to provide small modular reactors (SMRs) to the UK and Czech governments to power AI-driven data centres.

AI has been gaining popularity since 2022, but the technology uses a lot of energy.

Rolls-Royce CEO Tufan Erginbilgic told the BBC that by overtaking the largest company on the London Stock Exchange thanks to SMR trading, there is a “potential” to become the UK's most valuable company.

“There are no private companies in the world with the nuclear capabilities we have. If we weren't a global market leader, we'd done something wrong,” he said.

Erginbilgic has overseen a 10-fold increase in Rolls-Royce stock price since taking over in January 2023.

However, he tried to list stocks in New York, as did the UK chip designer Arm, and looked into searches for higher ratings by Shell and AstraZeneca, which eliminated the idea that Rolls-Royce would try to list stocks in New York.

This is despite the fact that 50% of shareholders and customers are based in the US.

“That's not in our plan,” said Elginbilgik, a veteran of the Turkish energy industry. “I don't agree with the idea that you can only perform in the US. That's not true and hopefully we've demonstrated it.”

Rolls-Royce already supplies reactors that power dozens of nuclear submarines. Erginbilgic said the company has a major advantage in the future market of bringing its technology to the land in the form of SMR.

Not only is SMR smaller than traditional nuclear power plants, it is not only faster to build, but costs can be reduced when units are deployed.

He estimates that the world needs 400 SMRs by 2050. At a cost of up to $3 billion (£2.2 billion) each, that he hopes and expects Rolls-Royce to take over.

The company has signed an agreement to develop six SMRs for the Czech Republic and three SMRs for the UK.

But it remains an unproven technology. Erginbilgic admitted that he could not refer to the SMR example he currently works, but said he was confident in his future potential.

There are also concerns about the demand for water supply from data centers and SMR cooling systems.

In response, companies like Google, Microsoft and Meta have signed transactions to take energy from US SMRs when available.

Rolls-Royce sees SMRS as the key to the future, but its biggest business is aircraft engines.

It is already dominant that supplies engines to wide-body aircraft such as the Boeing 787 and Airbus A350, and is set to break into next-generation narrow-body aircraft such as the Boeing 737 and Airbus A320. This market is worth 1.6tn – nine times the wide body.

Rolls-Royce is a Bit players in the market with strong, successful leaders, and their rivals, Pratt and Whitney, lost $8 billion and refused to infiltrate.

The market is dominated by CFM International, a joint venture of US-based GE Aerospace and French company Safran Aerospace Engines.

Industry veterans said market leaders can lower prices to airline customers and lower prices long enough to see a new attack on market control.

However, Erginbilgic said this is not Rolls-Royce's biggest business opportunity. Rather, it is “the UK's single biggest opportunity for economic growth because of industrial strategy… because of its economic strategy.”

“There are no other UK opportunities, I'm comparable to that,” he said.

Rolls-Royce sold its automotive manufacturing business to BMW nearly 30 years ago, and the company's name is synonymous with British engineering excellence.

But in the early days of the decade, its brilliance had worn down. The company was very beneficial, with no profit margins present and thousands of staff had been fired.

When Erginbilgic took over in January 2023, he likened the company to a “burning platform.”

“Our capital cost was 12% and returns were 4%, so every time we invested we destroyed the value,” he said.

Two and a half years later, the company expects to earn more than £3 billion, with debt levels falling and stocks rising above 1,000%.

So, how did that happen? And does Elginvilzick have the right to think that the Rolls-Royce roll is just beginning?

According to some industry veterans, the timing of his appointment was fortunate.

Rolls-Supplying the engine to commercial airlines, Rolls-Royce's biggest business – is strongly bounced back from Covid Pandemic.

The company's most successful product, the Torrent Series aircraft engine, is in a profitable sweet spot as return on investment in development began to flow into the company's financial resources more than a decade ago.

Russia's full-scale invasion of Ukraine in 2022 would definitely have increased spending from the European government, which was confirmed by recent announcements of defense operations.

The union is not necessarily a fan of Elgirsic's hard-charging approach.

In October 2023, one of his first major moves was to cut jobs. This attracted criticism from Unit Union boss Sharon Raham.

“The announcement appears to be about easing the market and its shareholders while ignoring workers,” she said at the time.

But overall global personnel have increased from 43,000 to 45,000 since 2023, with union sources saying Elgirsic has “sickly respectful.”

These sources give him a third of the company's fateful turnaround credits, a third being praised for market conditions, and a third giving credits to his predecessor, Warren East, for “stabilizing the ship.”

Does Erginbilgic really believe that Rolls-Royce can become the most valuable company in the UK?

“We're currently ranked fifth in FTSE. The growth potential we've created for our company with our existing and new businesses is actually true — we have that potential.”

Rolls-Royce is definitely a company with wind on the back, and Tufan Ergenbilgic certainly believes he just set the sails right.