Investors who own Rolls-Royce Holdings (LSE: RR.) shares will have been buoyed by recent news. The UK government has announced the start of building work at the new nuclear reactor at Wylfa, on Anglesey.

It will be home to three of Rolls Royce’s small modular reactors (SMRs), in a deal worth £2.5bn. That might not be a huge amount for a company with more than £20bn revenue in 2025. But it’s a key step on a road that will hopefully swell profits.

Expectations

What might those profits look like in another few years? Rolls doesn’t expect its SMR business to start contributing to the bottom line before 2030. But analyst forecasts still suggest handsome profit growth even before then.

What do they think investors should do about Rolls-Royce shares? Well, optimism seems to be the key word. Of 19 brokers offering recommendations, 14 have Rolls as a Buy. And for the remaining five, it’s a Hold. None that I can find thinks we should sell Rolls shares — not even after five-year gain of over 1,000%.

That past five years, by the way, would have been enough to turn a £10,000 investment into around £110,000. And the City folk think there’s more to come!

Numbers

After a bumper year for earnings per share (EPS) in 2025, the outlook suggests a softening this year. But there’s steady growth on the cards until 2028. And it could see EPS rising about 80% between 2023 and 2028. Why 2023? That’s the year the engineering giant returned to positive earnings after its crisis period.

In that time, the company has also turned crippling debt into a piles of net cash. There was nearly £2bn in the coffers at the end of 2025. And forecasts show that reaching over £5bn by 2028.

So things have been going great for Rolls-Royce. And the future looks ever brighter, right? Well, one key thing holds back my optimism a bit.

Valuation

We’re looking at a forecast price-to-earnings (P/E) multiple of around 34 for 2026. That’s over twice the FTSE 100 average. And it’s well above the forward P/E we see at AI chip giant Nvidia. Rolls-Royce’s projected EPS growth of 80% over five years could be a source of envy for many. But it’s small change compared to Nvidia’s soaring profits.

The comparison might however, be unfair, as these are really quite different companies. But they do share common growth stock patterns. And the Rolls-Royce valuation does make me a bit nervous now.

And my caution is increased by one concern: can Rolls really keep its profits growing sufficiently to justify such a valuation premium? Or will traidtional aero engine profits slow before the hoped-for nuclear boost can kick in?

Verdict

I do see the continuing attraction of Rolls-Royce shares for growth investors. And analyst forecasts don’t seem unreasonable. So I really could see many years of profit growth and attractive cash flow. But I can’t help feeling investors might do better to consider looking for more attractive valuations right now.