Following SpaceX (SPCX.US) releasing its third-quarter financial results, UBS said in a research note published on Wednesday that the company significantly exceeded the bank's expectations, with growth accelerating markedly, driven by the strong performance of its artificial intelligence (AI) compute leasing business.
SpaceX founder and CEO Elon Musk also addressed the topic of a potential merger between SpaceX and Tesla. He stated that the company has established a special committee to evaluate the transaction, but that he himself has recused himself from related discussions, limiting what he can disclose. He noted that merging the two companies makes considerable sense, but it is by no means a done deal.
Management also provided new guidance, including fourth-quarter capital expenditure projected at $35 billion to $40 billion (compared to UBS's prior estimate of $19 billion), up from $19.6 billion in the third quarter, as construction progresses at a faster pace. UBS estimates that achieving the company's 13-gigawatt compute deployment target will require approximately $350 billion in investment, a scale roughly comparable to other major hyperscalers (by comparison, Google at approximately $380 billion, Microsoft at approximately $230 billion, etc.).
UBS believes SpaceX continues to deliver on the market's elevated expectations, and this trend is expected to persist — with new compute deals coming online progressively in the fourth quarter, Starship advancing toward the goal of catching both the ship and booster, and Grok's performance and products continuing to improve. The bank views the combination of these assets as unique, and believes that as management achieves each of these milestones one by one, it will continue to create value over the long term. UBS assigns a "Buy" rating to SpaceX with a 12-month price target of $230.
1. Superintelligence (SI) Business: Accelerating Compute Deployment Pace
SI business revenue came in at $7.6 billion (in line with UBS estimates, 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 an increasing share (the Anthropic deal has reached full run rate, and Google has begun generating initial contributions), while the acquisition of Cursor was completed. This drove strong EBITDA conversion, reaching $5 billion (UBS estimate of $4.5 billion, consensus estimate of $4 billion), with a margin of 66%, up from $1.1 billion and 45% in the previous quarter.
Compute capacity increased by 300 megawatts to 1.7 gigawatts (UBS estimate of 1.8 gigawatts). Compute delivery is currently running at approximately 200,000 GB300 units per month (implying approximately 1.2 gigawatts of new capacity per quarter), and management expects the company to maintain this delivery pace as Rubin chips ship in 2027 (implying approximately 1.9 gigawatts of new capacity 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 leverage 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 (approximately 1.4 gigawatts), aimed at achieving optimal training performance and driving further progress in Grok. On the earnings call, Musk said he is "being pressed 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 approximately six months by next year.
On this basis, the company has now raised its end-of-2027 compute capacity target to 13 gigawatts, representing approximately 10 gigawatts of additional capacity compared to the previously projected 2.5-3.0 gigawatts by end of 2027. Musk said that based on current visibility into power generation capacity, compute capacity could even reach 20 gigawatts in 2027. At this infrastructure scale, with owned and leased compute capacity at roughly a 50:50 ratio, this would support the company in achieving $100 billion in annual recurring revenue (ARR) by the end of this year, potentially reaching $500 billion to $1 trillion by the end of 2027. Management also mentioned a modular inference compute deployment approach that integrates power and cooling systems within factories to accelerate deployment timelines.
2. Connectivity Business: Expected to Accelerate in Q4 and 2027
Connectivity business revenue reached $5.2 billion (UBS estimate and consensus estimate both at $4.9 billion), up 70% year-over-year; EBITDA was $3.5 billion (UBS estimate of $2.8 billion, consensus estimate of $2.9 billion), up 82% year-over-year. Consumer broadband business revenue grew 57% year-over-year (UBS estimate of 48%), while enterprise and government business (including Starlink Mobile) grew 91% year-over-year (UBS estimate of 79%), compared to 44% and 108% growth respectively in the previous quarter.
Starlink net new subscribers totaled 1.6 million (UBS estimate of 2.3 million; 1.7 million in the second quarter), bringing total consumer subscribers to 13.6 million. Meanwhile, average revenue per user (ARPU) declined 17% year-over-year to $69 (compared to a 22% year-over-year decline in the previous quarter). Management expects subscriber growth to accelerate in the fourth quarter (UBS estimates 2.4 million net new subscribers), as the company builds terminal inventory ahead of the holiday season and delivers device kits to retail channels.
Additionally, following the recent completion of the 800 MHz spectrum acquisition, management reiterated confidence in capturing share in the U.S. mobile communications market and plans to launch the first V2 mobile satellite in 2027. Although management did not elaborate on 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 conference call, Musk posted on X, again emphasizing the need to better explain the company's mobile business strategy and stating that telecom industry veterans do not understand the fundamental changes SpaceX is bringing to the industry.
3. Space Business: Starship Reaches Orbit, Investment Remains Elevated
Space business revenue was $1.77 billion (UBS estimate of $1.26 billion, consensus estimate of $1.41 billion), up 6% year-over-year (compared to 29% year-over-year growth in the previous quarter), as the company is currently in a transition phase from Falcon 9 to Starship. EBITDA was $357 million (UBS estimate of $144 million, consensus estimate of a $46 million loss), down from $672 million in the same period last year, due to increased Starship research and development spending.
Starship's 14th flight was SpaceX's first Starship mission to reach orbit and generate revenue, marking 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 approximately half of Starship's potential V3 payload capacity, but downlink capacity still approximately 10 times that of a Falcon 9 mission.
Management expects Starship to achieve weekly launches in the first half of 2027 and potentially twice-weekly launches in the second half of 2027, implying up to 72 launches in 2027 (UBS estimate of 30, consensus estimate of 40). The company remains on track to attempt recovering both stages of Starship this year (with the 15th flight 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 completed 35 total launches in the third quarter, down from 38 in the second quarter of 2026 and 44 in the same period last year, including 12 customer launches and 23 internal launches. Mass to orbit was 476 tons, down from 525 tons in the same period last year. Customer missions included NASA's Nancy Grace Roman Space Telescope launch mission, with 6 missions serving national security customers. During the quarter, the company added 3 crewed Dragon missions, with mission timelines extending through 2028; it also added 18 national security launch missions, 3 Starfall missions, and one Starship lunar payload delivery contract.
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