A rendering of an AST SpaceMobile satellite.
(Bloomberg) — AST SpaceMobile Inc. shares have more than tripled this year as the race for space-based cell phone connectivity heats up. With Elon Musk’s SpaceX division, Starlink, rushing to overtake it, AST is positioned for “painful corrections,” according to a Scotiabank analyst.
“In the midst of an impressive bull market, extreme volatility in recent days has led to what we see as a valuation bubble,” analyst Andres Coello wrote in a note Tuesday downgrading the stock to sector underperform from sector perform. After a key satellite launch setback, he fears further delays may encourage some carriers to explore ditching AST SpaceMobile and moving to Starlink.
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More than 2 billion people across the globe lack access to the internet via a high-speed network, that has Starlink and AST SpaceMobile vying to build networks that connect cell phones directly to broadband via satellite. Such connectivity is also critical during disasters and in conflict zones.
Based in Midland, Texas, AST SpaceMobile’s place as a key player in direct-to-device satellite connectivity has won over investors. The stock has surged this year. In the last month, the stock has jumped about 83%, with its market capitalization vaulting to almost $27 billion.
The biggest risks, according to Coello, are that the Block 2 Bluebird satellite — also known as FM1 — takes longer than expected or that a launch mission from India fails. If that were to happen SpaceX’s Starlink would stand to benefit.
AST SpaceMobile shares advanced to close at a fresh record in New York, erasing an earlier drop in the process and extending a winning streak triggered by the completion of the first successful satellite call over a Canadian wireless network with Bell.
In a recent update, SpaceX said the next-generation of Starlink direct-to-cell satellites would use a wider range of frequencies that would support a capacity increase of more than 100 times that of current satellites, which will enable full 5G cellular connectivity in most environments. Additionally, the Elon Musk-backed company agreed to acquire wireless spectrum from EchoStar Corp. for $17 billion last month.
“Our view is that the more time it takes for ASTS to bring a service to the market, the harder it will be to overcome Starlink’s improvements,” said Coello.
He also reflected that speculation about a possible takeover by Amazon.com Inc. appears overblown. While it makes sense for Amazon’s Project Kuiper — a low Earth orbit satellite broadband network — to look for wireless synergies with AST, Coello noted that Amazon’s “plate looks full” with $13 billion to $16 billion in planned fixed capital expenditure investments.
“We think a partnership would be mostly on the commercial front, perhaps with a small equity component,” Coello said.
The stock currently has six buy-equivalent recommendations, four holds and one sell, according to analysts tracked by Bloomberg. Coello’s price target of $42.90 implies more than 40% downside to Tuesday’s close.
(Updates shares throughout.)
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