Rolls-Royce (RR) opened higher today after announcing its small modular reactor (SMR) special purpose vehicle has secured a multi-billion-pound contract to build nuclear reactors in Sweden.
This major milestone serves as a huge catalyst for the London-listed engineering giant – validating its long-term power systems strategy.
On Monday, the SMR announcement is adding to the momentum in Rolls-Royce stock that is already up some 13% versus the start of this year (2026).
Why SMR news warrants buying Rolls-Royce stock
RR’s small modular nuclear reactor unit has locked in a lucrative agreement to deploy its compact nuclear technology in Sweden.
This marks a critical commercial breakthrough for that segment, transitioning it from development to large-scale deployment.
With data centers and technology infrastructure facing soaring energy demands, nuclear SMRs are increasingly viewed as a crucial baseload power solution.
Therefore, the Sweden deal reinforces Rolls-Royce’s positioning as a major player in global energy transition and decarbonization.
What’s also worth mentioning is that even after today’s gains, RR shares’ relative strength index (RSI) sits in the early 60s, signaling further room to the upside without slipping into the overbought territory.
A 0.7% dividend yield makes the British multinational even more attractive as a long-term holding.
Berenberg sees further upside in RR shares
The aforementioned nuclear contract news builds upon an already positive June trajectory, which was recently bolstered by a bullish research note from Berenberg analysts.
In its report, the investment firm raised its price objective on Rolls-Royce shares to 1,430p – citing resilient widebody flying hours and superior fleet positioning compared to European peers.
Note that Berenberg’s upwardly revised target signals potential upside of more than 7% from here.
Investors should also note that RR is going for a price-to-sales (P/S) multiple of roughly 5x, which makes it cheaper to own than its primary US rival, GE Aerospace, at more than 7x.
The London-headquartered aerospace and defence firm has been a rewarding investment in recent years, currently trading at well over 15x its price in late 2022.
How to play Rolls-Royce at current levels?
Beyond aviation recovery and near-term nuclear wins, RR stock is strongly positioned to capitalize on structural shifts in global defense spending.
With NATO members increasing their defense allocations toward or above the 2% GDP threshold, the company’s defense segment faces a highly visible, multi-year demand runway.
Furthermore, the huge capital expenditures cycle currently pouring into AI data centers will require decentralized, emission-free grid stability, effectively securing a secondary, long-term commercial pipeline for Rolls-Royce’s power systems.
Supported by solid free cash flow and aggressive debt reduction, this structural alignment suggests the stock could rip higher from current levels over the long-term.
And for the near-term, historical data showing RR closing both July and August in “green” makes it a compelling buy.
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