Nuclear-powered microreactors show great promise for opening new nuclear energy markets due to the flexibility offered by their rapid/streamlined in-factory fabrication, transportability, and self-regulating nature. The economic benefits of any commercialized nuclear reactor, however, rely on the system’s ability to produce large amounts of heat and efficiently convert that heat into electrical power reliably for long periods of time. Uranium-zirconium hydride (U-ZrHx) is currently being considered for compact reactor designs because it is a well-known nuclear fuel system that is self-moderating, but this fuel, which has historically been used for research reactors, has not been optimized for commercial power production. This paper analyzes the hydride stability of standard 304 stainless steel–clad U-ZrHx fuel under commercially relevant conditions. Fuel element design parameters, including physical dimensions, as-fabricated hydrogen content, burnup, peak fuel temperature, temperature gradient, operational fuel cycle duration, and volumetric heat generation rate, are discussed with a focus on hydrogen distribution and phase stability within the fuel element. Hydride stability declines more rapidly as the coolant temperature, burnup, and fuel cycle duration increase. Using a fuel-cladding gap material with heat transfer properties superior to air, such as helium or sodium, is essential to prolonging fuel hydride stability. The fuel’s physical dimensions are also important. At very small fuel diameters, the H/Zr ratio in the fuel meat decreases too rapidly due to the hydrogen content’s dependence on fuel meat volume. Conversely, the fuel meat temperature and temperature gradient exacerbate hydrogen loss at very large fuel diameters. We find that the most important parameter to consider when optimizing the hydride stability of U-ZrHx fuel is the relationship between the fuel meat radius and the power density in the fuel. A simple equation is empirically determined that relates the “Goldilocks radius,” that is, the fuel radius for which the H/Zr ratio is most stable, to the power density in the fuel.