Before SpaceX (SPCX.US) is set to release its third-quarter earnings after the U.S. market close on Tuesday Eastern Time, Morgan Stanley published a research note maintaining its "Overweight" rating and $300 price target on SpaceX.
The analyst team led by Adam Jonas believes that the core value of SpaceX that investors are underestimating does not lie in the fine details of beating expectations for a single quarter, but rather in its central role in building the "Physical Intelligence Economy" (PIE).
The firm believes that PIE could ultimately be several times the size of global GDP and carry significant implications for national sovereignty; therefore, the direction of SpaceX's stock price will depend less on the subtle results of the Q3 report and more on whether the PIE still fermenting in Musk's plans can release some substantive progress.
Q3 Expectations: Revenue and Compute Metrics in Focus
Morgan Stanley expects SpaceX's total revenue for the third quarter of 2026 to be $13.005 billion, slightly above the market consensus of $12.810 billion; EBIT is projected at $2.363 billion versus the market estimate of $2.396 billion; adjusted EBITDA is expected at $6.931 billion compared with the market estimate of $6.837 billion; and adjusted diluted earnings per share are projected at $0.19 versus the market estimate of $0.16.
By segment, Morgan Stanley expects Space revenue of $1.570 billion versus the market estimate of $1.458 billion; Connectivity revenue of $4.857 billion versus the market estimate of $4.917 billion; and AI revenue of $6.578 billion versus the market estimate of $6.435 billion. The AI segment includes $699 million in advertising revenue and $5.879 billion in AI solutions and infrastructure revenue.
On profitability, the report expects the Space segment to remain at an EBIT loss of $507 million, the Connectivity segment to post EBIT of $1.866 billion, and the AI segment to post EBIT of $1.005 billion. Gross margin is expected at 56.3%, with an operating margin of 18.2%.
On key operating metrics, the market expects consumer Starlink subscribers at 14.293 million, while Morgan Stanley projects 14.288 million; consumer monthly ARPU is expected at $66.74 by the market versus Morgan Stanley's $63.64; period-end compute capacity is expected at 1.7 GW by the market versus Morgan Stanley's 1.62 GW; and revenue per watt (Rev/Watt, annualized on average compute) is expected at $16.61 by the market versus Morgan Stanley's $17.42.
The firm emphasizes that revenue per watt may be one of the most important yet hardest-to-model variables in SpaceX's financials, because new cloud deal contracts have short terms (about six months) and the inference economics in internal models remain unclear.
Investor Sentiment: Leaning Positive, but Off-Quarter Overhangs Weigh on Valuation
The report notes that investor positioning sentiment ahead of the Q3 report has been like a rollercoaster and is hard to gauge precisely. Overall, however, investors are slightly positive on the earnings figures: compute pricing is only rising, not falling, and market expectations may not yet fully reflect the value from Cursor, Grok Bot, and announced new cloud partnership orders.
That said, overhangs beyond quarterly results are still preventing a considerable portion of investors from turning more positive. The firm specifically notes that SpaceX's stock price once surged from below $150 to $172 within about two weeks before pulling back, with little news flow during that period, and the total volume of investor questions received during that stretch matched the volume of questions received last Friday ahead of the earnings release, indicating sensitive sentiment and wide disagreement.
On strategy, Morgan Stanley states plainly that "market complacency is opportunity." The report argues that the remainder of the year will enter a catalyst-rich, upward-leaning path, starting with Starship's 15th test flight and a possible ship catch (using the launch tower's mechanical arms to catch the Starship upper stage), expected in the first half of November.
This could be SpaceX's biggest catalyst since its IPO and could de-risk the total addressable market (TAM) across major business lines. On valuation, based on the current share price of $146.03, Morgan Stanley believes SpaceX's stock already prices in $127 per share of the Space and Connectivity opportunity in its model, covering almost most or even all of that value, leaving only $19 per share for the AI business. That equates to roughly 2x 2028 EV/Sales for the new cloud business valuation multiple.
Core Disagreement: Will Compute Be 5 GW or 10 GW by End-2027?
The report shows that investors lack confidence that SpaceX's compute capacity by end-2027 will be "closer to 10 GW rather than 5 GW," mainly because it is uncertain whether future data center siting, power procurement, and construction pace can outrun the industry. Sell-side consensus is 6 GW, Morgan Stanley's model is 4.9 GW, and buy-side expectations are broadly in the 4 to 6 GW range.
Although Musk said on the last earnings call that it is "closer to 10 rather than 5," the report says it has not yet heard customers firmly betting on close to 10 GW. The report also points out that many investors still habitually view a single SpaceX business in isolation based on their own backgrounds (aerospace and defense, internet, telecom), and are only just beginning to understand the interconnectedness among the businesses.
Outside a minority of investors with close ties to Musk-affiliated companies, few seriously discuss "physical AI" as a future opportunity, even though Morgan Stanley sees it as the most obvious TAM expansion direction for AI and satellite communications. Questions about Terafab also remain confined to estimating the company's near-term capex burden.
On the new cloud business, the firm says recent transaction prices are around $30 to $50 per watt, and industry pricing indices are still rising through year-end; although hyperscalers and new cloud businesses are expected to bring more than 30 GW of incremental compute capacity in 2027, helping balance supply and demand. The company may lease up to half of its 2 GW of compute capacity by end-2026 to new cloud customers, after announcing two new deals during the Q2 earnings report and industry conferences; as compute scales above 5 GW by end-2027, follow-on deal announcements are worth watching.
The report also mentions that the company has repeatedly said the payback period for new cloud compute investment is about one year, indicating that compute supply and demand will remain fairly tight through next year.
Earnings Call and Follow-Up Catalysts: Starship, Starlink V3, Grok, and More New Cloud Business
The report expects SpaceX management to update the verbal guidance given on the Q2 call: Q4 capex expected to be similar to Q3; year-end compute "above 2 GW"; initial 2027 year-end compute guidance of 5 to 10 GW, with Musk previously saying "closer to 10 rather than 5." The company may also provide details on the Starship Flight 15 date and objectives, and the pace of deploying Starlink V3 satellites via Starship.
The report calculates that each Starship launch is equivalent to more than one to two months of Falcon 9 Starlink launch capacity, depending on the payload mix. On the call, the AI business is a key area to watch. Several AI milestones occurred in Q3, including completion of the Cursor acquisition, the release of Grok Bot, and clear improvements in Grok 4.6 and 4.7 that brought it closer to the model frontier.
This quarter could be the first real window for investors to observe inference economics. The firm recommends watching user growth for Grok and Cursor, token usage volumes, potential new enterprise deals, and penetration into existing Cursor customers—about two-thirds of Cursor's customers are Fortune 500 companies.
On Starlink, the report expects the company to provide more V3 planning details after Flight 14 deploys the first batch of 26 V3 satellites, including deployment pace and the balance with V2 mobile satellites. SpaceX recently announced the purchase of 800 MHz spectrum from Grain Management, pending approval from the U.S. Federal Communications Commission (FCC).
Morgan Stanley believes the company's direct-to-cell satellite business model remains relatively uncertain, and expects management to provide incremental information, but may deliberately keep options open. On Starship, Flight 15 is expected in early November, with the market watching whether a ship catch will be attempted. If successful, it could be SpaceX's biggest stock catalyst since its IPO and a major validation point for reusability, paving the way for the company to raise its launch cadence in 2027.
The company may also give general expectations for future test flights, though not necessarily a clear timetable, including the first simultaneous catch of both ship and booster in the same flight, the first launch from Florida, and more Starlink satellite deployment plans. Flight 16 is expected before year-end; if Flight 15 does not attempt a catch, Flight 16 could be the first catch opportunity; if Flight 15 succeeds in catching, the first same-flight catch of ship and booster could be seen.
In addition, Grok 4.8, 4.9, and 5.0 are expected to be released before year-end. Musk said on X on September 14 that Grok 4.8 will be a clear improvement over 4.7, 4.9 "may reach the level of current frontier models," and 5.0 "may be better than anything, let's wait and see." More new cloud deals are also seen as a potential catalyst: Morgan Stanley's model expects SpaceX compute at about 2.1 GW by year-end, rising to about 5 GW in 2027, opening room for more deals.
Financing, Lock-Ups, and Other Points of Focus
The report views additional financing needs as a key overhang on market sentiment, especially given recent new cloud vendor debt events. Morgan Stanley's model expects SpaceX to issue $60 billion, $80 billion, and $90 billion of bonds in 2027, 2028, and 2029, respectively, currently assumed to be plain investment-grade issuance, but the company has multiple financing options.
The report calls this the biggest risk to its model and says it does not want to downplay it; however, a hypothetical scenario in which SpaceX cannot raise financing could have broader implications for the economy and the rest of investors' portfolios. On lock-ups, investors no longer treat the staggered unlocking of restricted shares as a core concern, because the impact of unlocks so far has been relatively limited.
After the Q3 earnings report, 1.3 billion shares will unlock, and a total of 2.4 billion shares will unlock before year-end; however, more than 20% of that could be absorbed by passive index buying, potentially even more than the shares actually sold. The report also mentions that regarding the new Roadster co-developed by Tesla and SpaceX, there is no more new information beyond acknowledging that the demonstration was impressive. This is the first major product jointly designed by the two companies and a significant showcase of their engineering capabilities and collaboration potential.
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