AST SpaceMobile Stock: Riding the Hype—Will It Keep Surging?

It's a busy and exciting time for the space industry. Space stocks—companies that are engaged in activities related to space exploration—have experienced a major boost thanks to high-profile news stories. In mid-October SpaceX, the privately-held launch service, spacecraft maker, and satellite company founded by Elon Musk, successfully completed a major milestone with its fifth Starship flight test, including the first time a large rocket has been caught mid-air. NASA also made headlines as its Europa Clipper launched in October, bound for Jupiter's smallest moon.

This and other similar news has helped to propel space stocks like Kratos Defense & Security Solutions (NASDAQ: KTOS) and Rocket Lab USA Inc. (NASDAQ: RKLB) upward in the last several months. These companies range from defense firms that build aerospace equipment to satellite providers and much more. At the top of the list of momentum stocks in the space industry, though, is space-based cellular broadband provider AST SpaceMobile Inc. (NASDAQ: ASTS).

Hype Surrounding Satellite Launches

ASTS shares have spiked by more than 700% in the last year, though they've actually fallen by 2% in the last month and are down about 28% from their all-time high in August. However, the company's overall stability in the last month belies the stock's day-to-day volatility, as the company's shares have moved by 8% or more on multiple days in the last month.

AST SpaceMobile launched the first five satellites of its direct-to-smartphone broadband constellation in September. Although this is a relatively modest launch—these satellites are expected to provide intermittent connectivity of less than one hour per day in the U.S.—its success has spurred additional interest in the company. Further, telecommunications giants, including AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), have invested in AST and are partnering to make wireless frequencies accessible to the company so the satellites can reach pre-existing smartphones.

With the success of the satellite launch, AST is getting closer to launching its planned subscription service, in which smartphone users across the country can add connectivity to their existing plans through AST broadband on a day-by-day, standalone, or monthly basis. The company has also begun to generate revenue through a government contract involving its BlueWalker-3 satellite, launched two years prior. Together, these developments put AST—though not yet profitable—in a key leadership position in the burgeoning satellite broadband services industry.

Room for Growth, or Will Short Sellers Come Out on Top?

There is no doubt that AST is currently a high-risk proposition for investors. Its massive infrastructure costs have led to quarter after quarter of losses. Although the company has recently improved its top-line performance, there is still significant ground to cover before it proves its long-term viability. Still, the sense of enthusiasm among investors for AST's service—which would potentially apply to all wireless device users across the country, regardless of their service providers—has driven analysts across Wall Street to set a consensus price target of more than $43, the highest-ever level for the stock and nearly 60% higher than current levels.

At the same time, there is a large group of bearish investors betting against AST, at least in the short term. A whopping 30% of the company's shares are short sold as of mid-October. While this signals a significant view that AST shares will decline, it also sets up a large number of bears for a potential short squeeze that also has the potential to drive the price further upward.

Only Time Will Tell for ASTS

AST has over $400 million in cash reserves, which should provide the company with at least a year and a half of time to continue to grow its infrastructure and work toward sustainability. It also recently completed its stock warrants redemption and increased its share count by more than 13 million. All of this is to say that it may be a good time for optimistic investors to look at AST stock, despite its massive gains already in the last year. If the company is able to achieve long-term viability, its current share price may end up looking like a bargain in hindsight. With the support of major telecom players, this outcome seems increasingly likely.