AI 2170 Battery And Molecular Universe Will Open New Horizons

Key Takeaways

• SES AI's expansion in AI-enhanced services and strategic facilities aims to broaden market share and boost revenue while maintaining high gross margins.
  
• Advanced electrolyte technology and a strong cash position enable competitive advantages, strategic investments, and stable financial growth without debt concerns.
  
• Dependency on few OEM partners, modest revenue forecasts, high expenses, and competitive pressures in battery technologies create risks for future growth and profitability.

Catalysts

Engages in the development and production of AI enhanced lithium metal and lithium ion rechargeable battery technologies for electric vehicles, urban air mobility, drones, robotics, battery energy storage systems, and other applications in the United States and the Asia Pacific region.

• SES AI's introduction of the AI-enhanced 2170 cylindrical cell for robotics and drones, leveraging strategic facilities in South Korea, positions them to capture a broader market share, potentially boosting revenue significantly.
  
• The Molecular Universe platform allows SES AI to expand its software and services to a wider range of customers, beyond the initial two OEM partners, potentially increasing its revenue and profitability.
  
• The establishment of an asset-light business model, with a strategic focus on AI-enhanced services, supports maintaining high gross margins and scalable growth, which is expected to positively impact earnings.
  
• SES AI's strong cash position and disciplined cost management provide a foundation for strategic investments and operations without debt concerns, which can enhance net margins and financial stability.
  
• The potential for significant improvements in battery performance with SES AI's advanced electrolyte technology for higher silicon content in cells can create competitive advantages, likely driving increased revenue through higher customer adoption.

SES AI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SES AI's revenue will grow by 201.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1239.1% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $5.2 million (and earnings per share of $0.01) by about April 2028, up from $-97.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 92.8x on those 2028 earnings, up from -3.9x today. This future PE is greater than the current PE for the US Electrical industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 2.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.61%, as per the Simply Wall St company report.

SES AI Future Earnings Per Share Growth

Risks

• Significant reliance on a small number of OEM partners could pose a risk if these partnerships do not expand, potentially impacting future revenue growth.
  
• The company's forecasted revenue for 2025 ($15 million to $25 million) is relatively modest, which may indicate limited revenue scalability in the near term compared to potential investor expectations for high growth.
  
• High operating expenses ($27.8 million for Q1) far exceed revenue, impacting net margins, and highlighting the challenge in achieving profitability without substantial revenue growth.
  
• The need for successful commercialization and customer adoption of the Molecular Universe platform creates execution risk, which could affect the company's ability to generate expected earnings.
  
• The competitive landscape for battery technologies and AI tools is intense; failure to differentiate or meet performance claims could result in loss of market share and negatively affect revenue potential.

Valuation

• The analysts have a consensus price target of $1.0 for SES AI based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $214.8 million, earnings will come to $5.2 million, and it would be trading on a PE ratio of 92.8x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $1.03, the analyst price target of $1.0 is 3.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.