2Q26 Strong Start to Multi-Year Catalyst-Rich Arc
CITI’S TAKE
SPCX reported 2Q26 results which beat expectations. Results at each of SPCX’s three main segments exceeded our forecasts on all key measures including revenue, gross profit, and Adj. EBITDA. In particular, Adj. EBITDA in the company’s AI segment exceeded Citi expectations by nearly $1.5B which was the largest driver of the beat on a consolidated basis (more below). We’ve described the next 2-3 years as particularly catalyst-rich and management offered new insight into pre-existing catalysts as well as introduced some new ones. Ultimately, management’s bullishness culminated in pulling forward the company’s ~$1 trillion revenue target for 2031 to 2030 and “potentially as soon as 2029.” If achieved, this result would be substantially above VA consensus of $232B revenue in 2029 and $372B in 2030. In totality, we view 2Q26 results as uniformly positive vs. our bullish view on SPCX (see SPCX: Potential for $900+; Initiating at Buy).
Connectivity Segment: Expanding TAM and increasing line of sight to terrestrial build-out. Connectivity revenue of $4.3B exceeded VA consensus of $3.9B and Citi of $4.0B, and Adj. EBITDA of $2.6B exceeded VA consensus of $2.4B and Citi of $2.3B. Fundamentally, Connectivity reported a strong Q that exceeded our/consensus expectations. Specifically, for Starlink Broadband, management commentary was bullish on the constellation’s capacity expansion driven by upcoming v3 satellites, which is consistent with prior commentary. Management also outlined bold ambitions to carry the majority of global Internet demand over the long term (management noted an expanding TAM and additional updates coming soon). We have long believed that the Starlink Broadband constellation can be very competitive in rural and smaller markets, while we continue to believe that satellite broadband prospects in urban and suburban markets with density (population/households) are likely to face significant limitations. Management was also upbeat on enterprise/government opportunities and is expanding its enterprise salesforce to expand sales.
Furthermore, the company also revealed incremental insights that shape the contours of a terrestrial buildout. SPCX noted that the expected use of spectrum purchased from EchoStar will have terrestrial components and Starlink intends to build a terrestrial network. Management explained its high-level vision to build out terrestrial coverage for a mobile service by using a variant of small and/or femto cells. These cells would use Starlink broadband dishes that then provide connectivity to mobile spectrum bands. In the process, Starlink is targeting better and higher bandwidth than what is currently available from cellular providers. SpaceX refrained from sizing capital needed for this vision—for network and/or additional spectrum. In reaction, the discussion elevates the risk of Starlink as a fourth mobile competitor over the long term in the US market. We believe the high-level blueprint would be an ambitious offering and one that could be tough to implement, especially without at least one national MVNO deal in parallel to the discussed build strategy. We believe a terrestrial build would greatly benefit from a larger layer cake of spectrum across low-, mid-, and capacity bands over time as well as the use of tower infrastructure to quickly and efficiently scale coverage/capacity. We will continue to watch for developments, especially on the spectrum front.
AI Segment: Today’s largest driver of the beat is likely to be tomorrow’s largest driver of beats. AI revenue of $2.6B exceeded VA consensus of $2.0B and Citi of $2.1B, and Adj. EBITDA of $1.1B exceeded VA consensus of -$0.3B and Citi of $0.1B. Management offered a universally bullish view on AI in the short, medium, and long term. SPCX emphasized that the payback period on AI capex is running <1 year as the supply/demand mismatch has created a situation where each cloud services deal they’ve announced has incrementally better economics. Accordingly, the company now expects to end 2027 with 5-10 GW of compute vs. our expectation for 4.2GW. In fact, management indicated that they plan to have projects in place for roughly 20GW of compute by YE27, though various supply chain considerations hold back that full value being realized. This is likely to push forward capex needs, but with ROI on incremental capex so high, we do not view this as a major risk. Further reinforcing this bullish near-term view on AI, management noted that it expects to be at a ~$100B ARR in December 2026 (total company revenue), including Cursor for which the company expects to receive regulatory approval in 3Q26. Not surprisingly, management envisions the cadence of AI development activity at SPCX to accelerate meaningfully and highlighted the likely release of Grok 4.6 next week and Grok 4.7 in ~3-4 weeks. Finally, SPCX announced that it would build exclusively using Nvidia chips—the complete implications of which we will look for more information on. Altogether and although some questions remain, we believe management offered clear progress, beyond expectations, on both its terrestrial and orbital AI vision.
Space Exploration Technologies
Company description
SpaceX is a vertically integrated technology leader building the foundational hardware and software infrastructure for the future of space, global connectivity, and artificial intelligence. The company’s Launch segment pioneered full reusability to provide affordable access to orbit, while its Connectivity segment operates the world’s largest satellite constellation to deliver high-speed internet globally. Following its acquisition of xAI, SpaceX has also established a dedicated AI segment that integrates frontier models like Grok with massive terrestrial and orbital compute infrastructure.
Investment strategy
We rate shares of SPCX a Buy due to the following points: 1) Unrivaled launch capabilities right now and for the foreseeable future; 2) Unique capability of scaling space infrastructure and unlocking trillion-dollar market opportunities (Orbital AI and Starlink); 3) Extreme vertical integration, which reinforces the company’s ability to drive costs down, throughput up, and deliver at a scale at which no competitor can replicate; and 4) Differentiated margin and growth profiles.
Valuation
We derive our $200 base-case price target for SPCX using the average of three valuation methods: 1) 2027E growth adj. multiples (EV/Revenue/Growth and EV/EBITDA/Growth) for the “Trillion-Dollar Comps” (a basket of similar trillion-dollar+ market caps); 2) sum-of-the-parts (SOTP) valuing Space, Connectivity, and AI separately using 2027E growth adj. multiples (EV/Revenue/Growth and EV/EBITDA/Growth) for industry-specific comparable companies; and 3) 2030E comparable company multiples (EV/Revenue and EV/EBITDA) for the “Trillion-Dollar Comps” (a basket of similar trillion dollar+ market caps).
Risks
Risks to our thesis, which could impede the shares from reaching our price target, include headwinds to the launch segment which reference the failure to demonstrate rapid reusability on Starship, lack of launch infrastructure, and regulatory headwinds from the FAA and other government organizations. The failure to rapidly gain market share in Starlink mobile, as well as demonstrate the ability to create AI orbital satellites capable of compute, also presents risks to SPCX.