Howmet’s SpaceX threat looks more like a buying opportunity: Bernstein

SpaceX's plans to manufacture industrial gas turbine blades and vanes do not pose a significant threat to Howmet Aerospace, according to analysts at Bernstein. In fact, the company could potentially see a buying opportunity as the stock experiences weakness. SpaceX aims to produce 20 gigawatts of behind-the-meter power capacity for AI data centers in Texas by the end of 2027.

Howmet currently holds over 50% of the market for industrial gas turbine blade castings, with a strong presence in high-end turbines. While Elon Musk has highlighted the dependence on a limited number of suppliers as a bottleneck, Howmet has secured long-term agreements with all major industrial gas turbine producers. These agreements are expected to last until around 2030, which aligns with Musk's prediction that turbine blades are effectively sold out during this period.

The company's first new capacity expansion began in the second quarter, with a total of six more expansion projects planned. Additionally, Howmet's industrial gas turbine business grew by 38% during the quarter. Some analysts argue that SpaceX's decision to build its own capacity may simply indicate the tight state of the market due to rising demand for power generation, rather than signaling a decline in prospects for Howmet.

However, producing components at scale presents its own set of challenges for SpaceX. The company is likely to prioritize meeting its own requirements rather than becoming a major supplier competing with Howmet in the broader turbine market. As a result, Howmet currently carries an Outperform rating with a $328 price target, which represents approximately 24% upside from its August 28 closing price of $264.85.