X-Energy (XE) can deploy around 20 gigawatts of nuclear power by 2040 underpinned by a solid technology value proposition, a capital-light business model, and commercial partnerships, Morgan Stanley said in a Tuesday note initiating stock coverage.

X-energy is differentiated from its competitors with its arrangement to avoid construction risk in building nuclear reactors, by having its customers select a separate engineering, procurement and construction firm and own and operate the reactors, the report said.

The company will earn revenues from technology fees, fees from services before the reactor commercial operation date, and long-term services fees, as well as the sale of its TRISO-X fuel for the Xe-100 reactors, according to the note.

The company has a large total-addressable market opportunity, with electricity demand at a 3.6% compound annual growth rate through 2035, and data centers accounting for about 63% of incremental load, the note said.

"We think the company has a strong technology and commercial proposition, making it one of the key players to help shape the next generation of nuclear reactors," the report said.

Morgan Stanley started coverage of the stock at overweight with a price target of $41.

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