Brief Overview
Space Exploration Technologies Corp. (SPCX) reported third-quarter 2026 revenue of US$14.6 billion, surging 161 per cent year on year. Nine-month 2026 revenue reached 94 per cent of Phillip Securities Research’s full-year 2026 estimate, exceeding expectations due to stronger Super Intelligence (SI) revenue. The results were driven by new cloud services agreements coming online at higher rental prices and Cursor adding US$608 million from mid-August; Connectivity growth, as aviation installs and Starshield contracts lifted enterprise and government revenue 91 per cent year on year; and operating leverage, as higher-margin cloud services turned SI profitable and gave SPCX its first operating profit since listing. Starlink consumer average revenue per user fell 17 per cent year on year as lower-priced plans and markets made up more of the subscriber base. Management guided first-quarter 2027 revenue of US$33 billion to US$37 billion and fourth-quarter 2026 capital expenditure of US$35 billion to US$40 billion, maintaining its US$100 billion annual recurring revenue target for December.
Investment Positives
Compute Rental Prices Are Rising
One of the most compelling positives highlighted by us are that compute rental prices continue to climb. Management reports that pricing for new cloud services capacity is slightly above the US$30 to US$50 per watt range it gave in the prior quarter. Excluding US$1.2 billion of Cursor-related share-based compensation, Super Intelligence earned US$1.6 billion of operating profit. SPCX plans to rent about half of its compute capacity to third parties and use the remainder for its own models. Grok Bot reached 800,000 paid weekly users within two months of launch, providing an additional demand driver. Advertising revenue rose 19 per cent year on year on the new ad tech platform, further supporting monetisation across the platform.
Starship Starts Deploying V3 Satellites
A significant operational milestone was reached during the quarter. Flight 14 reached orbit and deployed 26 Starlink V3 satellites, adding approximately ten times the downlink capacity of a Falcon 9 Starlink launch while only about half loaded. Management expects a few hundred V3 satellites in orbit by mid-2027, at which point users should notice faster speeds. Connectivity operating income rose 99 per cent year on year, although a one-off tariff refund contributed to the 55 per cent gross margin. Starlink is now contracted on roughly 12,000 aircraft, covering almost a quarter of available aircraft globally.
Short-Term Contracts Allow Prices to Rise with Demand
We note that about half of SPCX’s US$63 billion backlog is due within a year, and management prefers short-term contracts priced near spot rates. This structure lifts revenue while compute remains scarce, and management says it could rent its capacity several times over. The same structure will cut revenue quickly if supply catches up with demand, making renewal pricing the key figure to monitor each quarter.
Investment Challenges
Starship Spending Pushes Space into a Loss
The Space segment swung to a US$7 million operating loss from a US$259 million profit, as research and development expenditure rose 44 per cent year on year to US$1,225 million on Starship development. Segment adjusted EBITDA nearly halved to US$357 million. Total launches fell to 35 from 44 as fewer Starlink missions flew on Falcon 9, and mass to orbit fell 9 per cent year on year. Management targets weekly Starship flights in the first half of 2027, so R&D spending should remain elevated until full reusability lowers launch costs.
Capital Expenditure Outruns Operating Cash Flow
Nine-month 2026 capital expenditure of US$48.1 billion was 3.7 times operating cash flow, leaving a free cash outflow of US$35.0 billion. Debt and finance leases rose to US$38.8 billion from US$22.9 billion at end-2025, and quarterly interest expense rose 31 per cent year on year to US$675 million. We forecast capital expenditure of US$85 billion in FY26e, rising to US$250 billion in FY27e as SPCX adds approximately 10GW of compute, leaving a free cash outflow of roughly US$182 billion in FY27e. Management plans to fund this from operating cash flow, debt and partnerships with vendors and customers, while maintaining its investment-grade rating.
Outlook
Compute additions are expected to set the pace of FY27e revenue. Management expects 2.5 to 3GW of nameplate compute by end-2026 and is highly confident of adding 10GW in 2027, with power and cooling as the main constraints.Our FY27e revenue estimate of US$132 billion is below the implied annualised first-quarter 2027 guidance of approximately US$140 billion, as delays in bringing power and cooling online are anticipated.
SpaceX and Tesla have each formed special committees of independent directors to discuss a potential merger at the request of shareholders. No terms have been agreed, and the deal is not a certainty. A merger would combine SPCX’s approximately US$2 trillion market value with Tesla’s roughly US$1.5 trillion, so the exchange ratio will determine whether SPCX shareholders gain or are diluted. We do not include a merger in the forecasts or target price.
Recommendation and Target Price
Phillip Securities Research upgrades SPCX to BUY from SELL with a higher target price of US$250, up from a previous target of US$75. We raise FY26e revenue to US$45.1 billion from a previous estimate of US$28.9 billion and forecasts FY27e revenue of US$132 billion on higher SI revenue. Weighted average cost of capital (WACC) and growth rate assumptions of 10 per cent and 3.5 per cent respectively remain unchanged. The investment thesis centres on compute demand: contracts are renewing at higher prices per watt, new capacity pays back in under a year, and guidance implies first-quarter 2027 revenue more than double that of the third quarter of 2026. The main risk is that rental prices fall as capacity grows, though management expects prices per watt to rise as models improve, and older H100 chips still rent above their original prices.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
Frequently Asked Questions
Q: What is Phillip Securities Research's recommendation and target price for SPCX?
A: Phillip Securities Research upgrades SPCX to BUY from SELL with a target price of US$250.00, up from a previous target of US$75.00.
Q: What drove SPCX's strong revenue growth in the third quarter of 2026?
A: Third-quarter 2026 revenue of US$14.6 billion surged 161 per cent year on year, driven by new cloud services agreements at higher rental prices, Cursor adding US$608 million from mid-August, and Connectivity growth from aviation installs and Starshield contracts lifting enterprise and government revenue 91 per cent year on year.
Q: Why did the Space segment swing to an operating loss?
A: The Space segment posted a US$7 million operating loss, down from a US$259 million profit, as research and development spending rose 44 per cent year on year to US$1,225 million due to Starship development costs.
Q: How is SPCX funding its significant capital expenditure?
A: Nine-month 2026 capital expenditure of US$48.1 billion was 3.7 times operating cash flow. Debt and finance leases rose to US$38.8 billion. Management plans to fund future spending through operating cash flow, debt and partnerships with vendors and customers, while maintaining its investment-grade rating.
Q: What is the outlook for compute rental pricing?
A: Management says pricing for new cloud services capacity is slightly above the US$30 to US$50 per watt range given in the prior quarter. The main risk is that rental prices could fall as capacity grows, although management expects prices per watt to rise as models improve, and older H100 chips still rent above their original prices.
Q: What progress has been made with Starship and V3 satellites?
A: Flight 14 reached orbit and deployed 26 Starlink V3 satellites, adding approximately ten times the downlink capacity of a Falcon 9 Starlink launch. Management expects a few hundred V3 satellites in orbit by mid-2027.
Q: What is the status of the potential SpaceX-Tesla merger?
A: SpaceX and Tesla have each formed special committees of independent directors to discuss a merger. No terms have been agreed, the deal is not a certainty, and wet do not include a merger in forecasts or the target price.
Q: What is Phillip Securities Research’s revenue forecast for FY27e?
A: We forecast FY27e revenue of US$132 billion, which is below the implied annualised first-quarter 2027 guidance of approximately US$140 billion, as delays in bringing power and cooling online are expected.
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