Phillip Securities analyst downgrades SpaceX to Sell with $75 price target
Five-star analyst Glenn Thum cites short-term AI contracts, high capital expenditure, and customer concentration risk as key drivers behind the divergent outlook.
Phillip Securities analyst Glenn Thum has issued a Sell rating for SpaceX stock, setting a $75 price target that implies a 46 per cent downside from the current trading level near $140. The recommendation stands in sharp contrast to the broader market sentiment, with Wall Street’s average price target sitting at approximately $227, suggesting significant upside potential. Thum, recognised as a five-star TipRanks analyst with an 89 per cent success rate, argues that the current valuation fails to account for structural risks within the company’s rapidly expanding artificial intelligence division.
The analyst’s bearish thesis centres on the nature of SpaceX’s cloud service contracts, which Thum contends are too transient to justify the premium multiples currently attached to the shares. While AI revenue surged 247 per cent year-on-year to $2.56 billion in the second quarter, these agreements charge monthly fees and allow clients to exit with just 90 days’ notice following an initial ramp-up period. Thum maintains that until these arrangements are converted into multi-year commitments, the revenue stream lacks the permanence required to support the stock’s current price.
Concentration risk presents another significant concern for the analyst. A single AI customer accounted for 19.5 per cent of SpaceX’s second-quarter sales, a notable increase from less than 10 per cent a year earlier. This dependency exposes the company to heightened volatility should a major client reduce spending or terminate its agreements. Thum warns that the market is currently assigning excessive value to sales volumes that are vulnerable to rapid contraction.
Capital expenditure levels further complicate the investment case, with SpaceX spending $18.4 billion on CapEx in the second quarter, nearly 2.4 times its quarterly sales. The company is aggressively expanding its compute capacity, which is projected to exceed 2 gigawatts by December, up from 1.4 gigawatts in June. Thum expects this elevated spending trajectory to persist over the next two quarters, arguing that the firm is investing heavily on the assumption of permanent AI demand before the underlying contracts have proven their durability.
Valuation metrics highlight the extent of the disconnect between current pricing and near-term earnings. At the $140 share price, SpaceX trades at 373 times forward non-GAAP earnings and roughly 1,891 times forward GAAP earnings, compared to a sector average of 13.4 times. While GuruFocus estimates suggest earnings could rise to $11.19 per share by 2030, Thum’s assessment suggests that the current market pricing assumes a flawless execution of long-term growth plans that remain unproven.
Institutional interest remains robust despite the bearish commentary, with Nvidia disclosing 122.76 million SpaceX shares worth nearly $21 billion and Alphabet holding 551.2 million shares valued at approximately $94.2 billion. Additionally, nearly 320 million restricted shares are set to become eligible for transfer on August 20, following a larger lock-up release in early August that did not trigger a significant selling wave. Nevertheless, Thum’s analysis underscores the precarious balance between SpaceX’s explosive growth narrative and the tangible risks embedded in its business model.
