“We see a wide range of possibilities around the newly acquired AI (artificial intelligence) business and find its economic moat indeterminate, and that it also poses a material threat of value destruction to the company, which limits our overall economic moat rating to narrow,” he notes in his report dated June 12 (US time).
Despite the bearish sentiment, Owens believes SpaceX’s share price will likely continue growing at least for some time due to buoyant investor appetite for AI infrastructure bids and its inclusion in the Nasdaq 100 index just 15 trading days after its IPO.
However, investors looking to buy into the stock may want to wait for when successive tranches of stock held by private investors and employees become available for sale into the public market some months after.
Given this, Owens believes “long-term investors eager to participate in SpaceX’s future endeavors and potential success will have opportunities to do so with a greater margin of safety than the initial offering is likely to provide”.
For now, the analyst has a fair value estimate of US$63 per share.
“The firm’s core launch and satellite communications businesses drive its moat rating due to the prodigious cost advantages achieved through continued research and development and accelerated economies of scale,” he writes.
Looking forward, Owens expects Starlink to remain SpaceX’s primary cash generation engine and internal funding source for other ambitious projects the firm has.
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“Starlink benefits from the firm’s extensive launch cost advantage, and a majority of the company’s future launches will be allocated to scaling Starlink deployment by launching tens of thousands of communications satellites into low Earth orbit,” he says. “We expect Starlink’s revenue and profits to compound at a high rate, supported by its unmatched ability to provide connectivity in remote areas worldwide.”
He also sees a path to annual revenue growth of tens - but not necessarily hundreds - of billions of dollars in the coming decade, as well as operating margins potentially exceeding 75% thanks to its leading operating cost advantage and the negligible incremental cost of adding users to its existing network infrastructure.
“An important consideration is that the biggest structural difference between a scaled satellite network operator such as Starlink and traditional cable, fiber, or wireless operators is that an investment in SpaceX’s orbital telecom infrastructure increases its utility to all users globally, whereas investments by fixed-line and wireless operators apply locally,” he notes.
