3 Stocks You'll Wish You Bought. 2 You'll Regret Owning.

Key Concepts

• Uniform Accounting: A methodology that adjusts GAAP (Generally Accepted Accounting Principles) financial statements to reflect economic reality, allowing for accurate comparisons of profitability and valuation.
• Return on Assets (ROA): A key metric used to measure a company's efficiency in generating earnings from its assets.
• Economic Moat: A sustainable competitive advantage that protects a company's market share and profitability.
• Hyperscalers: Large-scale cloud computing providers (e.g., Google, Amazon, Microsoft) that require massive amounts of compute power.
• Bottleneck Investing: Identifying companies that control essential components or infrastructure required for a broader industry trend (e.g., AI).
• Uniform PE Ratio: A price-to-earnings ratio calculated using "true" economic earnings rather than reported GAAP earnings.

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1. The SpaceX Valuation Analysis

Rob Spivey and Joel Litman of Altimetry Research argue that while SpaceX is a legitimate, profitable business, its current valuation is speculative. They break the company into three segments:

• Launch (Space): A stable, asset-intensive business with a 12% ROA and an 80% market share. It is not a massive growth engine but provides a solid foundation.
• Starlink (Connectivity): A high-growth segment with $11 billion in revenue and a 30% ROA. While Elon Musk suggests a $1.5 trillion TAM (Total Addressable Market), the analysts estimate a more realistic $100 billion TAM.
• xAI: Currently hemorrhaging money, but potentially valuable if it becomes a primary compute partner for hyperscalers.
• Conclusion: A valuation of $1.3 trillion to $1.5 trillion is defensible, but the stock is too volatile to "chase" at current levels.

2. Recommended Stocks to Buy

The analysts highlight three companies positioned to benefit from the AI and space infrastructure boom:

ASML (ASML)

• Role: The sole provider of extreme ultraviolet (EUV) lithography machines required to manufacture the world’s most complex AI chips.
• Key Metric: Their uniform ROA is 22%, significantly higher than the 15% often cited by market analysts.
• Moat: Extremely high barriers to entry; even competitors cannot reverse-engineer their technology.
• Outlook: Benefiting from a "beat and raise" trend as they ramp up production of high-margin equipment.

Northrop Grumman (NOC)

• Role: A defense contractor with significant exposure to space (1/4 of their business) and missile/radar systems.
• Key Metric: Uniform accounting reveals an ROA twice as high as the 5–6% reported under GAAP.
• Catalysts: Increased US defense spending and the need to replenish military hardware used in recent conflicts.
• Valuation: With a uniform PE of 26x, the analysts consider it "wildly cheap" relative to its growth potential.

GE Vernova (GEV)

• Role: Manufacturer of massive gas turbines ("Jersey Boys") essential for powering data centers.
• The Bottleneck: There is a 5-year backlog for these turbines, giving the company immense pricing power.
• Operational Shift: Moving from a "loss leader" model (where turbines were sold at a loss to secure long-term service contracts) to a high-margin model due to extreme demand.

3. Stocks to Avoid

AST SpaceMobile (ASTS)

• Argument: While the concept of direct-to-cellular satellite service is promising, the company has a negative 14% ROA.
• Competitive Risk: It is competing against Starlink, which is already profitable and has a denser satellite constellation. The analysts view ASTS as a "stalking horse" for carriers like AT&T and Verizon to keep SpaceX in check, rather than a standalone $100B+ company.

Tesla (TSLA)

• Argument: The current valuation implies a 50% ROA, whereas the company is currently operating at a 6% ROA.
• Competitive Threat: China’s state-subsidized EV manufacturers, who benefit from lower costs, intellectual property theft, and government support, make it nearly impossible for Tesla to achieve the margins required to justify its current price.
• Governance Concerns: The analysts suggest that Elon Musk may eventually merge his various ventures (Tesla, SpaceX, xAI) to consolidate power, a move they view as a risk to corporate governance.

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Synthesis and Conclusion

The core takeaway is that investors should look past "hype" and GAAP-reported earnings. By using Uniform Accounting, investors can identify companies with real economic moats and pricing power—specifically those controlling the "bottlenecks" of the AI and space economies (ASML, GE Vernova). Conversely, companies facing intense global competition (Tesla) or those struggling to achieve profitability in a capital-intensive market (AST SpaceMobile) should be approached with extreme caution. The analysts emphasize that volatility is a feature, not a bug, of high-growth sectors, and investors must be prepared to stomach short-term price swings for long-term fundamental gains.