AST SpaceMobile’s (ASTS) stock has been on a tear this year, soaring 254% on hopes its satellites will connect cell phones directly to broadband.
Which made it somewhat surprising when Scotiabank analyst Andres Coello downgraded AST SpaceMobile’s shares on Tuesday, citing the possibility that the stock faces “painful corrections” due to “significant competitive and operating risks.”
Coello downgraded the stock and cut its price target to $42.90, which would imply a 40% downside to its Tuesday close of $75.75
“In the midst of an impressive bull market, extreme volatility in recent days has led to what we see as a valuation bubble,” Coello said.
The company’s stock’s price has doubled over the past month, but Coello calls that “marketing-driven” due to Bell Canada’s recent data test using AST SpaceMobile’s network.
One of the significant headwinds that Coello sees for AST SpaceMobile is increased competition coming from SpaceX’s Starlink direct-to-cell satellites, especially as AST SpaceMobile has been dealing with delays.
He pointed out that the company “is running six months late in shipping the first BB2 to India,” while “Starlink is already monetizing the service.”
Both AST SpaceMobile and Starlink are racing to build networks to service the more than two billion people across the globe who lack access to high-speed internet services.
One of the main concerns that Coello has with AST SpaceMobile’s delays is “the possibility of customers overseas getting impatient and ditching ASTS for Starlink rather than waiting until 2027 or 2028.”
SpaceX struck a $17 billion deal in September to buy spectrum licenses from EchoStar, which enables EchoStar's Boost Mobile subscribers to access SpaceX's next-gen Starlink Direct-to-Cell service. The deal is pending regulatory approval.
But if approved, the spectrum licenses are expected to help Starlink deliver superior service to smartphones. SpaceX is also planning to launch 15,000 new and improved satellites for cellular service.
“Combining this exclusive spectrum with new state-of-the-art satellite technologies, SpaceX’s next generation Direct to Cell (‘D2C’) service will deliver unparalleled performance to standard, unmodified cell phones and Internet of Things devices," SpaceX said in a recent filing.
That will help "close coverage gaps and ultimately eliminate mobile dead zones around the world.”
Abel Avellan, founder and CEO of AST SpaceMobile, said in the company’s second-quarter earnings release in August that the company has a “fully-funded plan to deploy 45 to 60 satellites into orbit by 2026.”
These satellites will support continuous service in the U.S., Europe, Japan and “other strategic markets.”
Avellan said the company is planning orbital launches every one to two months on average during 2025 and 2026.
However, in addition to competition from Starlink, Coello also targeted a financial headwind facing AST SpaceMobile, pointing to its high capital expenditures (CapEx) that he projects will leave the company burning cash until the middle of 2027.
Despite the downgrade, AST SpaceMobile’s stock closed up 2.5% on Tuesday.
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