Results beat expectations, but the grand technology vision is not yet sufficient to support further valuation premium

Overview

This report reviews SpaceX's first quarterly results after its June 2026 listing. Second-quarter revenue and operating loss were both clearly better than market expectations, with the AI and Connectivity businesses benefiting from new contracts in compute capacity, the Starshield government program, and airlines. Although Starlink has established relatively solid operating cash flow, HSBC believes SpaceX's long-term valuation logic remains highly dependent on as-yet unvalidated technological innovation, so it only slightly raised the target price and maintained its Hold rating.

Core views

First, second-quarter revenue rose 92% year on year to USD 7.8bn, 13% above market expectations, showing strong growth in the AI and Connectivity businesses. Second, high-margin compute contracts drove a significant narrowing in operating losses, but the company did not provide clear financial guidance for the next quarter or the full year, and there is limited post-listing historical data, so the sustainability of the earnings beat still needs to be observed. Third, Starlink is currently the more mature business, but large-scale capture of the terrestrial telecom market remains constrained by technology and regulation. Fourth, orbital data centers, next-generation satellites, lower Starship launch costs, and compute capacity expansion to above 10GW by end-2027 are all key potential catalysts and also constitute major execution risks. Fifth, the target price increase is limited, and the current share price is already above the target price, so the risk-reward profile is insufficient to support a more positive rating.

Analysis framework

The report first compares second-quarter actual results with Visible Alpha market expectations and the same period last year to identify the business drivers of the revenue beat and loss narrowing; it then adjusts revenue and EBITDA forecasts for the three segments of Space, Connectivity, and AI; finally, it uses a sum-of-the-parts valuation method to assess each business separately, applies a 2.0x innovation premium to the overall valuation, and calculates the target price based on the latest share count.

Methodology notes

• Valuation methodSum-of-the-parts valuation method (SOTP)

  Value the Space, Connectivity, and AI businesses separately, then aggregate them to form the company's base valuation.

  HSBC raised the valuation of the AI business from USD 150bn to USD 151bn, raised the valuation of the Connectivity business from USD 250bn to USD 272bn, and lowered the valuation of the Space business from USD 391bn to USD 387bn.

• Valuation adjustmentInnovation premium

  Apply an additional multiple to the aggregated segment value to reflect the company's technological innovation and long-term optionality.

  The report keeps the 2.0x innovation premium unchanged; the change in target price mainly comes from adjustments to operating forecasts and changes in share count, rather than an increase in the valuation multiple.

• Earnings analysisComparison of actual results with market expectations

  Assess quarterly performance through actual results, market consensus expectations, and year-on-year data.

  Second-quarter revenue was 13% above Visible Alpha expectations, and operating loss was also significantly smaller than market expectations, but due to the lack of long-term historical data and clear guidance, the comparison results should be interpreted cautiously.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SPCX.US

  The core stock covered by the report, rated Hold.

  Strengths

  New AI and Connectivity contracts drive rapid growth, Starlink already has strong operating cash generation capability, and vertical integration provides long-term business synergy potential.

  Weaknesses

  Valuation is extremely high, free cash flow remains negative, capital expenditure is massive, and there is a lack of clear short-term financial guidance.

  Comparison

  The target price of USD 117 is below the share price of USD 125.33 as of August 4, 2026, implying 6.6% downside.

  Risks

  Starship fails to achieve the expected launch cost reductions, next-generation satellites are constrained by technology or regulation, compute capacity expansion is delayed, and orbital data centers cannot be commercialized.

• Starlink／Connectivity

  SpaceX's current core business with relatively higher maturity and stronger cash flow performance.

  Strengths

  EBITDA less capital expenditure reached USD 2bn in the first half of 2026, with government and airline contracts providing incremental demand.

  Weaknesses

  Large-scale replacement of terrestrial telecom networks remains constrained by spectrum, regulation, terminal capabilities, and satellite technology.

  Comparison

  HSBC raised the valuation of this business from USD 250bn to USD 272bn, making it the main driver of this target price increase.

  Risks

  Next-generation satellite deployment falls short of expectations, user growth or average revenue per user comes under pressure, and regulatory restrictions intensify.

• AI business

  An important growth business improving revenue and profit.

  Strengths

  High-margin compute contracts with Anthropic and Google significantly improved second-quarter operating performance.

  Weaknesses

  Expanding from the current 1.4GW to a target of more than 10GW by end-2027 requires massive capital investment and intensive execution.

  Comparison

  HSBC raised its valuation of the AI business only slightly from USD 150bn to USD 151bn, indicating that recent performance improvement has not yet significantly changed the long-term valuation.

  Risks

  Compute capacity construction falls behind schedule, contract concentration is high, energy and infrastructure constraints emerge, and the orbital computing business model remains unvalidated.

Key data

• Second-quarter revenueUSD 7.8bnUp 92% year on year and 13% above the Visible Alpha expectation of USD 6.9bn.
• Second-quarter operating lossUSD 143mLoss was USD 970m in the same period last year, while the market expected a loss of USD 1.6bn.
• Starlink first-half cash generation capabilityUSD 2bnRepresents EBITDA less capital expenditure in the first half of 2026, compared with USD 1.3bn in the same period of 2025.
• 2026 revenue forecastUSD 41.401bnRaised 8% from the previous forecast of USD 38.208bn.
• 2026 adjusted EBITDA forecastUSD 21.195bnRaised 12% from the previous forecast of USD 18.890bn.
• 2026 capital expenditure forecastUSD 69.539bnReflects the large-scale investment required for satellites, launches, and compute infrastructure construction.
• AI business valuationUSD 151bnPrevious value was USD 150bn.
• Connectivity business valuationUSD 272bnPrevious value was USD 250bn, making it the main source of this valuation increase.
• Space business valuationUSD 387bnPrevious value was USD 391bn.
• Target price and current priceUSD 117.00／USD 125.33Target price raised from USD 115, implying 6.6% downside.

Impact & implications

The earnings beat and higher Starlink forecasts improve near-term profit expectations and validate that AI compute contracts can contribute higher margins; however, the target price increased only slightly, indicating that the current market capitalization has already priced in substantial long-term growth and innovation expectations. The key to the investment judgment is no longer just revenue growth, but whether SpaceX can achieve Starship cost reductions, next-generation satellite scaling, compute capacity expansion, and orbital computing commercialization on schedule, while improving free cash flow under high capital expenditure.

Risks

• Starship cannot achieve the launch cost reductions needed to support the Connectivity and AI businesses.
• Next-generation satellites face technological, spectrum, or regulatory obstacles, limiting Starlink's ability to capture the terrestrial telecom market.
• Compute capacity cannot increase as planned from 1.4GW to more than 10GW by end-2027.
• Orbital data centers remain in the testing stage, with significant uncertainty over commercial feasibility and economics.
• The company has not provided clear quarterly or full-year financial guidance, and post-listing historical data is limited, so forecast errors may be large.
• Capital expenditure is expected to reach USD 69.539bn in 2026, free cash flow is expected to remain negative, and financing and execution pressures are high.
• The current share price is above the target price, and the high valuation may amplify downside risk if earnings or technological progress falls short of expectations.

What to watch

• Renewals, scale expansion, and margin sustainability of new AI and Connectivity contracts.
• Starlink user numbers, average revenue per user, and next-generation satellite deployment progress.
• Starship test progress, launch frequency, and the magnitude of decline in unit launch costs.
• The construction pace, capital expenditure, and energy security for expanding compute capacity from 1.4GW toward the target of more than 10GW.
• Whether orbital data centers only conduct testing or enter substantive operations over the next year.
• Whether the company subsequently provides clearer quarterly or full-year guidance on revenue, profit, and capital expenditure.
• Changes in operating cash flow, free cash flow, and external financing needs in a high capital expenditure environment.