Should You Buy Amazon Stock as Its Secretive Space Project Kuiper Launches?
Amazon's (AMZN) space internet services seem to be taking flight as the company successfully launched its first 27 Project Kuiper satellites aboard a United Launch Alliance Atlas V rocket from Florida. This marked the beginning of a planned 3,236-satellite constellation designed to provide global broadband internet access.
This is after years of development and a previous attempt that was postponed due to weather conditions. Amazon is also expected to report its Q1 earnings tomorrow, May 1, and the stock is now down 17.6% year-to-date. Does this space venture make AMZN stock a buy-the-dip opportunity now?
Amazon to Challenge SpaceX in the Satellite Internet Race
This launch is Amazon's most significant bet outside its core e-commerce and cloud businesses. Kuiper could eventually connect millions of individuals in rural and underserved areas worldwide to the internet. The company is targeting the same market as SpaceX.
However, Starlink, the SpaceX subsidiary, is far ahead, and the satellite broadband business is capital-intensive and fiercely competitive. So, Amazon is quite late to the party here.
Catching up won't be easy, as SpaceX has already put more than 8,000 satellites into orbit and serves over 5 million customers in 125 countries. In contrast, Amazon is just getting started, with only 27 operational satellites so far and a tight regulatory deadline to deploy half its constellation by mid-2026.
Can Kuiper Succeed?
Amazon has deep pockets and is spending up to $20 billion on this project. With that in mind, the company might be able to eke out some good market share vs. SpaceX. User terminals are expected to cost under $400 and deliver up to 400 Mbps, so Amazon is targeting governments and enterprises too.
Goldman Sachs forecast earlier this year that the base case for the satellite market was $108 billion by 2035, up from $15 billion. In their most optimistic 'Blue Sky' scenario, Goldman Sachs sees the market at $457 billion.
If Amazon does manage to dominate here, this could be a massive high-margin revenue source, perhaps comparable to its e-commerce business.
Should You Buy Amazon Stock as Kuiper Launches?
If you are looking to buy AMZN stock just because of Kuiper, I'd suggest looking deeper into the business here. Kuiper alone does not make Amazon a buy, as the low Earth orbit satellite segment is still new, and a lot could go wrong.
Amazon is very unlikely to dominate this market. It's a big market for sure, but Goldman Sachs noted that '...53,000 of the estimated 70,000 launches over the next half-decade are likely to be from China.' And it is almost a given that Kuiper will not derive any notable revenue from China, as that would violate the country's Great Firewall.
As a result, Kuiper and SpaceX would have to fight for the remaining market. Amazon is not going to capture all of that. I'd instead focus on the cloud and e-commerce business when valuing AMZN stock.
The mean analyst price target of $246.43 implies 36% upside.
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