Geopolitical Tensions And Acquisition Setbacks Will Weaken Outlook

Key Takeaways

• Geopolitical and supply chain risks, alongside tougher ESG regulations, threaten to push costs higher, cut revenue growth, and jeopardize critical customer contracts.
  
• Integration challenges from acquisitions and slow adoption of new platforms could lead to weaker margins, income drains, and stagnant recurring revenue.
  
• Rapid platform adoption, strategic acquisitions, financial discipline, and proprietary technology position SES AI for strong, differentiated growth and industry leadership in AI-driven battery solutions.

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 future growth is likely to be severely constrained by persistent geopolitical uncertainty and the increasing risk of supply chain disruptions for critical advanced battery materials. If deglobalization accelerates, costs for procurement and manufacturing could surge, leading to missed delivery timelines for large customers and significantly curbing revenue growth as global electrification ramps up.
  
• The company's recent move to expand through inorganic acquisitions such as UZ Energy exposes it to the risk of integration failures and heightened operational complexity. If acquired hardware businesses or software platforms fail to scale or integrate seamlessly, SES AI could see ongoing margin compression and a drain on net income as expenses persistently outpace top-line growth.
  
• SES AI's vision for substantial earnings growth from its AI-driven Molecular Universe platform assumes rapid, industry-wide adoption and problem-solving capabilities that consistently outperform leading human experts. However, if enterprise customers remain slow to transition from trials to paid subscriptions or development partnerships due to insufficient demonstrated value, both recurring revenue and licensing earnings may fall far short of expectations.
  
• Longer-term, if environmental regulations or ESG requirements continue to intensify and SES AI's processes, data transparency, or battery recycling capabilities lag behind regulatory standards, the company may face escalating compliance costs and even contract revocations that directly suppress profit margins and threaten future sales.
  
• Intensifying competition from alternative battery chemistries such as solid-state or sodium-ion, particularly if larger manufacturing incumbents vertically integrate or rapidly scale superior solutions, could quickly erode SES AI's market share. This scenario would pressure both overall revenues and gross margins by rendering SES AI's lithium-metal approach technologically obsolete and less attractive to major OEM customers.

SES AI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on SES AI compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SES AI's revenue will grow by 124.2% annually over the next 3 years.
• The bearish analysts are not forecasting that SES AI will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SES AI's profit margin will increase from -878.6% to the average US Electrical industry of 10.2% in 3 years.
• If SES AI's profit margin were to converge on the industry average, you could expect earnings to reach $13.1 million (and earnings per share of $0.03) by about August 2028, up from $-99.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 38.4x on those 2028 earnings, up from -4.1x today. This future PE is greater than the current PE for the US Electrical industry at 30.6x.
• Analysts expect the number of shares outstanding to grow by 2.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

SES AI Future Earnings Per Share Growth

Risks

• Accelerating adoption of SES AI's Molecular Universe platform by more than 30 companies for enterprise-level trial testing, with a significant pipeline and the potential for joint development agreements, suggests the possibility of substantial software and service revenue expansion as industry adoption of AI in battery R&D increases.
  
• Integration of UZ Energy through acquisition expands SES AI's reach into the rapidly growing global energy storage systems market, providing access to robust hardware capability and a $300 billion market, which could drive exponential long-term revenue and market share growth.
  
• Deepening operational and capital discipline, demonstrated by a strong liquidity position of $229 million, no debt, and declining cash burn, enhances the ability to self-fund growth initiatives and platform investments, preserving earnings resilience even during expansion.
  
• Steady progress in product commercialization, with AI-enhanced lithium metal and lithium-ion battery cells already generating rising revenues from drone, urban air mobility, and EV development, increases the likelihood of maintaining high gross margins and improving top-line growth.
  
• Unique access to proprietary, high-quality real-world battery data and an unparalleled material discovery team position SES AI to create differentiated, superior battery products faster than legacy competitors, supporting robust recurring revenue and possible premium gross margins over the long term.

Valuation

• The assumed bearish price target for SES AI is $1.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SES AI's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $128.0 million, earnings will come to $13.1 million, and it would be trading on a PE ratio of 38.4x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $1.13, the bearish analyst price target of $1.0 is 13.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.