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

Space Exploration Technologies (NASDAQ: SPCX) shares soared after Elon Musk predicted the company could deliver annual recurring revenue (ARR) of between $500 billion and $1 trillion in 2027. If SpaceX hits those 2027 revenue estimates, the stock looks like a strong buy.

However, Musk acknowledged that meeting all his 2027 targets was not guaranteed, and that there are risks to the company's ability to reach these goals. SpaceX stock was up about 9% from its $135 IPO price before its earnings report on Tuesday.

Let's take a closer look at its results and prospects to see whether the stock still looks like a buy.

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SpaceX has big ambitions

Musk's huge ARR projections stem mainly from increased compute capacity and an increased rocket-launch cadence. The company plans to bring online an additional 10 gigawatts of computing power in 2027, which is up considerably from Musk saying last quarter that the company planned to have cumulative compute power closer to 10 gigawatts than 5 gigawatts after ending 2026 with around 2 gigawatts. He added there was a small possibility it could have over 20 gigawatts of compute power online by the end of next year.

In addition to increasing compute capacity, SpaceX plans to accelerate its launch schedule in 2027. Its goal is for Starship to fly weekly in the first half of the year and possibly twice a week in the second half. This, of course, depends on the company being able to rapidly recover, refurbish, and fully reuse its Starship rocket, which it still needs to do.

Turning to its results, SpaceX's Q3 revenue surged 161% to $14.6 billion, topping the $12.7 billion analyst consensus, as compiled by LSEG. Its net income from operations came in at $2.8 billion, while net income was $4.4 billion. Meanwhile, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than quadrupled to $8.8 billion.

The company's growth was led by its superintelligence (formerly AI) segment, as revenue climbed from $813 million a year ago to $7.56 billion. Segment EBITDA, meanwhile, went from a loss of $428 million to a profit of $4.95 billion. SpaceX is mainly renting out compute capacity on a short-term basis and benefiting from high prices, as it continues to see a payback on its investments in less than a year.

Starlink, the company's satellite internet service, also had a strong quarter. Revenue in its connectivity segment climbed 69%, while its operating income roughly doubled to $2.4 billion. Starlink subscribers climbed 89% year over year and were up 13% sequentially. Meanwhile, Musk said its acquisition of low-band spectrum will help it become a major mobile carrier in the U.S. some time in 2028.

Its space segment, home to its reusable rocket and launch service business, saw revenue rise 6% to $1.8 billion. However, the segment's operating income flipped from a profit of $259 million to a loss of $7 million. Importantly, the company said it was on track to recover the first and second stages at the tower this year and then refly the second stage early next year.

Looking ahead, SpaceX said it remains on track to reach $100 billion in ARR by the end of 2026. It expects to have up to 3 gigawatts of compute power online by year-end and anticipates Q4 capital expenditures of between $35 billion and $40 billion.

Is SpaceX stock a buy?

If SpaceX can end 2027 with ARR between $500 billion and $1 trillion, the stock should move significantly higher, given that the current 2028 analyst revenue consensus is under $250 billion. Just applying a forward price-to-sales (P/S) multiple of nearly 10 times on $500 billion in 2028 revenue would give the stock a $5 trillion market cap, more than double where it trades today.

However, Musk's forecast should be taken with a grain of salt, as his track record of ambitious predictions has been pretty spotty. First, the company needs to achieve its goals with Starship, which, while it is making progress, will be no easy task.

Meanwhile, much of SpaceX's projected growth is set to come from AI infrastructure, which will require massive capex. It is also worth noting that SpaceX is benefiting from a compute-starved world, allowing it to command high prices and get quick paybacks on its investments. If supply and demand start to become more balanced due to its own aggressive infrastructure spending, its current AI economics could worsen.

Overall, SpaceX still has strong upside potential even after its post-earnings surge, but there are also risks to the story.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.