When it comes to artificial intelligence (AI), Rolls-Royce (LSE: RR.) shares aren’t usually the first name on people’s lips. That might be changing however. Because the FTSE 100 manufacturer has carved out a sizeable and growing niche providing vital energy supplies to power the data centres that underpin the AI revolution.

The AI boom has already supercharged some stocks to incredible gains. Could Rolls-Royce be next in the queue? CEO Tufan Erginbilgiç thinks so. He said AI has the “potential” to make Rolls the UK’s highest-valued company – that means a £228bn market-cap and £31.54 share price as things stand. Let’s take a look at why he’s so bullish.

Growth avenues

A little context. Rolls-Royce is already working with AI titans like Nvidia. The company’s Power Systems division plays a vital role in supplying reliable energy for the data centres that are pivotal to this technology. These take the shape of things like diesel gas generators that can offer 24/7 back-up energy at the flick of a switch.

But the real growth avenue is SMRs – a type of small and easy-to-build nuclear power plant. If gas generators are a short-term boost, SMRs are the long-term play. AI companies such as Alphabet, Microsoft and Meta have already signed deals to take energy from SMRs (though not from Rolls-Royce, to be clear).

Erginbilgiç expects big things: “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’s referencing that Rolls-Royce has been building nuclear reactors (for Royal Naval submarines, for instance) since the 1950s. The bottom line? SMRs could be the future of power for AI and Rolls-Royce could be at the heart of it.

A buy?

Let’s take a temperature check, because there’s more than a few roadblocks in the way here.

For one, the technology behind ChatGPT, Grok or Claude is indeed impressive, but it’s far from profitable as of yet. Most users of these services don’t pay. And businesses, often seen as the primary beneficiary in terms of efficiency improvements, are mostly not seeing a return on investment in AI projects.

The long-predicted ‘AI stock market crash’ might even come our way, and that could put paid to any dreams of Rolls-Royce getting a slice of the action.

A second point of concern is that this technology’s unproven. The first Rolls-Royce SMR is due to come online in 2030. Until then (and perhaps later, seeing as there might be further delays), we will not know how viable these things are as a source of power.

Overall? Rolls-Royce is a thriving company with a clear future catalyst in the technology of the future. There are risks to be aware of, but I feel the stock’s worth thinking about.

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John Fieldsend owns shares in Rolls-Royce and Nvidia.