Back in September, I bought a few SpaceX (NASDAQ: SPCX) shares for my ISA when they were trading at $147. Since then, the shares have behaved a bit like a SpaceX rocket – they shot up before returning to Earth.
Could now be the time to boost my position, given that third-quarter earnings were very strong? Let’s discuss.
Huge revenue growth
SpaceX’s Q3 earnings, posted on 20 October, were impressive. Not only did the company generate strong growth in two out of its three main business segments, but it also generated a profit for the quarter.
Overall, total revenue came in at $14.6bn, up 161% year on year. Breaking this down:
- Space revenue was up 6% to $1.8bn.
- Connectivity revenue was up 69% to $5.2bn.
- SI (artificial intelligence) revenue was up 830% to $7.6bn.
What stands out here is the revenue from AI. This was up a whopping 830% year on year, showing that SpaceX’s strategy of offering AI compute to other tech companies is working.
$2.8bn in operating profit
In terms of profits, adjusted EBITDA was $8.8bn versus $2.2bn a year earlier. Meanwhile, income from operations was $2.8bn versus -$273m a year earlier.
I’ll point out here that the former (which can be manipulated by management) is a metric designed to proxy a company’s core, normalised cash-generation capacity by removing things such as stock-based compensation and restructuring costs. The latter measures the profit (or loss) a company generates from its core business operations and is subject to strict accounting standards.
AI spending is significant
Looking beyond these headline numbers, there were plenty of other positives in the results. For example, the company had 13.6m Starlink subscribers at the end of Q3 versus 12m at the end of Q2.
On the downside, AI capex was enormous. This amounted to $16.4bn versus $4.8bn a year earlier.
Higher price targets
What’s interesting is that since the results, Wall Street analysts have been scrambling to increase both their earnings forecasts and price targets for SpaceX. For 2027, analysts now expect earnings per share of $3. At today’s share price of $145, that puts the stock on a price-to-earnings (P/E) ratio of about 48, which isn’t that high relative to the growth.
As for the price targets, some of these are very high. For example, JP Morgan has just gone from $240 to $500 while Cantor Fitzgerald has risen from $246 to $345.
Overall, analysts are very bullish. While SpaceX has a large market-cap today, analysts expect it to grow in the medium term.
How SpaceX fits into my portfolio
For me, the key challenge is sizing the position right in my portfolio. Right now, SpaceX is a small holding in my portfolio because it’s a risky, more speculative stock.
I could probably increase my position size a little bit. But I wouldn’t want it to be too big because, realistically, the stock could fall back to $100 if growth slows or there’s an operational setback.
My move now
Given the strong earnings, I probably will snap up a few more shares in the weeks ahead. That’s assuming they don’t take off and soar to a much higher price level.
While I expect them to be volatile in the short term, I do see a lot of long-term potential. In my view, they’re worth a look near $150.
Should you invest £5,000 in SpaceX right now?
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Edward Sheldon owns shares in SpaceX and JP Morgan.
This story originally appeared on Motley Fool
