SI business accelerates explosively, consolidating growth trend! UBS Group AG raises SpaceX (SPCX.US) target to $230.

After SpaceX (SPCX.US) reported its third-quarter results, UBS Group AG said in a research note published on Wednesday that thanks to the strong performance of its artificial intelligence (AI) compute leasing business, SpaceX's results significantly exceeded the bank's expectations, with growth accelerating markedly. SpaceX founder and CEO Elon Musk also discussed the topic of a merger between SpaceX and Tesla, Inc. He said the company has established a special committee to evaluate the transaction, but that he himself is recusing himself from the discussions, so the information he can disclose is limited. He said combining the two companies makes a great deal of sense, but it is by no means a done deal. Management also provided some new guidance, including fourth-quarter capital expenditure expected at $35 billion to $40 billion (versus UBS Group AG's prior estimate of $19 billion), up from $19.6 billion in the third quarter, as construction progress accelerates. UBS Group AG estimates that to achieve its 13 GW compute deployment target, the company will need to invest about $350 billion, a scale roughly comparable to other major hyperscalers (by comparison, Alphabet Inc. Class C at about $380 billion, Microsoft Corporation at about $230 billion, etc.). UBS Group AG believes SpaceX continues to deliver on the market's high expectations, and that this trend will persistnew compute deals coming online in the fourth quarter, Starship progressing toward the goal of catching the ship and booster, and continued upgrades to Grok's performance and products. The bank believes the combination of these assets under the company is unique and will continue to create value over the long term as management delivers on each of these goals one by one. UBS Group AG rates SpaceX "Buy" with a 12-month price target of $230. 1. Superintelligence (SI) business: accelerating the pace of compute deployment SI business revenue was $7.6 billion (in line with UBS Group AG's estimate and above the consensus estimate of $6.5 billion), up 195% quarter over quarter and 830% year over year. The AI cloud business continued to contribute more (the Anthropic deal has reached full run rate, Alphabet Inc. Class C has begun to make an initial contribution), while the acquisition of Cursor was completed. This drove high profit conversion at the EBITDA level, reaching $5 billion (UBS Group AG estimate of $4.5 billion, consensus estimate of $4 billion), a margin of 66%, up from $1.1 billion and 45% in the previous quarter. Compute capacity increased by 300 MW to 1.7 GW (UBS Group AG estimate of 1.8 GW). Compute delivery is now running at about 200,000 GB300 units per month (implying about 1.2 GW added per quarter), and management expects the company to maintain this delivery pace as Rubin chips ship in 2027 (implying about 1.9 GW added per quarter). Cloud compute pricing is currently slightly above the $30 to $50 per watt range outlined last quarter, and the company will continue to use short-term deals to benefit from rising GPU prices. By the second quarter of 2027, SpaceX plans to deploy a cluster of 440,000 Rubin chips (about 1.4 GW), aimed at achieving optimal training results and driving further progress in Grok. On the earnings call, Musk said he is "being hounded by every hyperscaler" to provide more compute leasing services, and that demand is so strong that the compute capacity the company currently has would sell out quickly even at several times the volume. He expects spot leasing prices to continue rising, potentially shortening the payback period to about six months by next year. On that basis, the company has now raised its end-2027 compute capacity target to 13 GW, an increase of about 10 GW from the previously expected 2.5-3.0 GW by end-2027. Musk said that based on current visibility into power generation capacity, compute capacity could even reach 20 GW in 2027. At this infrastructure scale, and with owned and leased compute capacity at a roughly 50:50 ratio, this would support the company in reaching $100 billion in annual recurring revenue (ARR) by the end of this year, and potentially $500 billion to $1 trillion by the end of 2027. Management also mentioned a modular inference compute deployment approach that accelerates deployment timelines by integrating power and cooling systems at the factory. 2. Connectivity business: acceleration expected in Q4 and 2027 Connectivity business revenue reached $5.2 billion (UBS Group AG estimate and consensus estimate both $4.9 billion), up 70% year over year; EBITDA was $3.5 billion (UBS Group AG estimate of $2.8 billion, consensus estimate of $2.9 billion), up 82% year over year. Consumer broadband revenue grew 57% year over year (UBS Group AG estimate of 48%), enterprise and government business (including Starlink Mobile) grew 91% year over year (UBS Group AG estimate of 79%), versus 44% and 108% respectively in the previous quarter. Starlink net new users were 1.6 million (UBS Group AG estimate of 2.3 million; 1.7 million in the second quarter), bringing total consumer users to 13.6 million. Meanwhile, average revenue per user (ARPU) fell 17% year over year to $69 (down 22% year over year in the previous quarter). Management expects user growth to accelerate in the fourth quarter (UBS Group AG expects 2.4 million net new users), as the company is building terminal inventory ahead of the holiday season and delivering device kits to retail channels. In addition, after recently completing the 800 MHz spectrum acquisition, management reiterated confidence in its ability to gain share in the U.S. mobile communications market and plans to launch the first V2 mobile satellite in 2027. Although management did not detail how or when the company will deploy the newly acquired spectrum, it confirmed that the 800 MHz band will be deployed on macro base stations. After the call, Musk posted on X, again emphasizing the need to better explain the company's mobile business strategy and saying that telecom industry veterans do not understand the fundamental changes SpaceX is bringing to the industry. 3. Space business: Starship reaches orbit, investment remains high Space business revenue was $1.77 billion (UBS Group AG estimate of $1.26 billion, consensus estimate of $1.41 billion), up 6% year over year (up 29% year over year in the previous quarter), as the company is currently in transition from Falcon 9 to Starship. EBITDA was $357 million (UBS Group AG estimate of $144 million, consensus estimate of a $46 million loss), down from $672 million a year earlier due to increased Starship research and development spending. Starship's 14th flight was SpaceX's first Starship mission to reach orbit and generate revenue, a key technical milestone in the project's evolution from the development phase to commercial operations. The 14th flight deployed 26 Starlink V3 satellites into the broadband satellite constellation, with a payload about half of Starship's potential V3 payload capacity, but downlink capacity still about 10 times that of a Falcon 9 mission. Management expects Starship to achieve one launch per week in the first half of 2027 and potentially two per week in the second half of 2027, implying up to 72 launches in 2027 (UBS Group AG estimate of 30, consensus estimate of 40). The company remains on track to attempt recovery of both Starship stages this year (the 15th flight is targeted for next month), and plans to launch the second stage again in early 2027, along with an in-orbit refueling demonstration next year. Falcon 9 conducted 35 total launches in the third quarter, down from 38 in the second quarter of 2026 and 44 a year earlier, including 12 customer launches and 23 internal launches. Mass to orbit was 476 tons, down from 525 tons a year earlier. Customer missions included NASA's Nancy Grace Roman Space Telescope launch, with six missions serving national security customers. During the quarter, the company added three crewed Dragon missions extending through 2028; it also added 18 national security launch missions, three Starfall missions, and a Starship lunar payload delivery contract.