$SPCX

‌SpaceX will release its third-quarter financial results after US markets close on October 20. This second full quarterly report since its IPO is under scrutiny by markets as it will show the first tangible results from the company's massive spending on AI infrastructure.

Market expectations point to strong quarterly momentum. Wall Street analysts expect SpaceX revenue to rise to between $12.7 billion and $13.0 billion, approximately 65% from the previous quarter's $7.81 billion. Adjusted earnings per share (EPS) are expected to be between $0.14 and $0.17. If these figures are achieved, the company will have reported positive adjusted earnings per share for the first time since its IPO.

The AI segment's performance is a key factor.

The performance of the company's AI unit is the most critical aspect of this quarter. The AI segment, which generated $2.56 billion in revenue in the second quarter, is expected to grow by approximately 150% to $6.4 billion this quarter, surpassing Starlink for the first time and becoming the company's largest revenue stream. This growth is driven by computational hosting agreements with major language model developers.

However, despite this rapid increase in AI revenue, the segment's profitability remains questionable. In the second quarter, the unit recorded an operating loss of $1.26 billion. Investors will primarily focus on whether this revenue growth improves operating margins.

Capital Expenditures and Cash Flow

The biggest pressure on the company's balance sheet comes from capital expenditures on AI infrastructure. Capital expenditures, which reached $18.37 billion in the second quarter, are expected to rise to $19.61 billion in the third quarter. A large portion of these expenditures are being used for data centers and GPU clusters. At this rate of investment, the company's free cash flow is projected to be negative $11.6 billion. Morgan Stanley analyst Adam Jonas identifies the need for additional funding to finance AI infrastructure spending as the "biggest risk" to the company's stock.

Annual Recurring Revenue (ARR) Target

The company's financial management plans to exceed its annual recurring revenue (ARR) target of $100 billion by the end of the year. Evercore analyst Kutgun Maral estimates that the company could surpass this target, reaching an ARR of $104 billion by the end of the year and increasing its computing capacity to 2.3 gigawatts.

Market Pricing and Technical Outlook

The options market expects a 7.8% move in the stock following the results. This points to a range of $134.64 to $157.42 from the closing price of $146.03. The company's shares are trading just below the IPO price of $150, which stands out as a psychological threshold. The average target price of analysts is $210, and the "Moderate Buy" consensus is maintained.

Clear Reading

For SpaceX, the third quarter will be a test to see if the story shifts from "growth" to "profitability and cash flow." Revenue exceeding $6.4 billion from the AI segment and potential first positive EPS could ease some pressure on the balance sheet. However, the projected $19.61 billion in capital expenditures and negative $11.6 billion in free cash flow indicate the company will continue to need external financing to fund this growth. The real determinant for the market will be how much of this growth translates into profit, rather than the speed of revenue growth.

This article is not investment advice. The analysis is based on publicly available information and does not guarantee future results.

$SPCX