SpaceX Shares Surge as Elon Musk Makes Huge Revenue Prediction. Is the Stock Still a Buy?

SpaceX shares experienced a significant surge after Elon Musk predicted the company's annual recurring revenue (ARR) could reach between $500 billion and $1 trillion by 2027. While Musk acknowledged that achieving these targets was not guaranteed, the stock exhibited a notable 9% increase from its $135 IPO price before the earnings report on Tuesday. This article delves into SpaceX's results and prospects to determine whether the stock remains an attractive investment.

Musk's projected ARR surge primarily stems from increased compute capacity and a more frequent launch cadence. The company plans to add 10 gigawatts of computing power by 2027, a substantial increase from its earlier estimate of 5 gigawatts by the end of 2026. Musk also hinted at the possibility of over 20 gigawatts of compute power online by the end of the following year.

SpaceX aims to launch Starship weekly during the first half of 2027, potentially twice a week in the second half, contingent on its ability to rapidly refurbish and reuse the Starship rocket.

In the third quarter, SpaceX reported a revenue surge of 161% to $14.6 billion, surpassing analyst consensus estimates of $12.7 billion. The company's net income from operations reached $2.8 billion, while net income stood at $4.4 billion. Its adjusted EBITDA more than quadrupled to $8.8 billion. The superintelligence (formerly AI) segment drove this growth, with revenue increasing from $813 million to $7.56 billion, and EBITDA switching from a loss of $428 million to a profit of $4.95 billion.

Starlink's connectivity segment saw a 69% revenue surge, while its operating income nearly doubled to $2.4 billion. However, the space segment, which includes SpaceX's reusable rocket and launch service business, reported a 6% revenue increase to $1.8 billion but posted an operating loss of $7 million.

Looking ahead, SpaceX aims to reach $100 billion in ARR by the end of 2026, with up to 3 gigawatts of compute power online by year-end. The company anticipates capital expenditures between $35 billion and $40 billion for Q4. If SpaceX manages to achieve an ARR between $500 billion and $1 trillion by 2027, its stock value could soar, with a forward P/S multiple of nearly 10 times on $500 billion in 2028 revenue potentially yielding a market cap of over $5 trillion.

However, Musk's record of ambitious predictions has been inconsistent, and SpaceX's growth largely hinges on its Starship rocket and AI infrastructure, both of which face significant challenges. Moreover, SpaceX benefits from a compute-starved world, enabling it to command high prices and generate quick paybacks on its investments.

Consequently, while SpaceX still exhibits strong upside potential following its post-earnings rally, there are notable risks to consider.