The market is too optimistic about sustained growth, even allowing a substantial AI premium. I retain my $156.94 twelve-month target: customer demand remains exceptional, but the next annual outlook should test whether earnings can support today’s valuation.
Key points
- 76 times my FY2028 normalized earnings forecast is today’s valuation.
- 53% revenue growth in FY2027 remains my forecast, not a demand collapse.
- $156.94 a share remains my October 2027 target; no material disclosure changes it.
The call
The market demands faster growth than I expect. At a 60-times earnings multiple, today’s price requires FY2028 revenue of $21.7 billion under my profitability assumptions. That requires 74% growth after my FY2027 forecast, versus the 36% I expect.
U.S. customers drive the extraordinary sales growthSource: August 3, 2026 earnings call; Q2 2026 revenue growth versus Q2 2025.
I expect expansion, not deterioration. Existing customers are spending more, and commercial pilots are becoming larger agreements. But hosting and hiring costs constrain earnings, while investment gains and unusually low taxes flatter reported profit. The FY2027 outlook should test whether extraordinary growth can persist as the revenue base expands.
Valuation
| Driver | My estimate |
|---|
| FY2027 revenue | $12.5 billion |
| FY2028 revenue | $17.0 billion |
| FY2028 operating margin, including employee stock awards | 50% |
| FY2028 normalized diluted earnings | $2.62 a share |
| October 2027 forward earnings multiple | 60 times |
| Twelve-month target, using unrounded earnings | $156.94 a share |
FY2027 revenue comprises U.S. commercial sales of $6.0 billion, U.S. government sales of $4.9 billion and international sales of $1.6 billion; earnings assume $400 million annual interest, a 23% tax rate and 2.62 billion diluted shares. The 60-times multiple preserves a substantial premium for the AI deployment franchise, but continued enthusiasm could overwhelm the earnings forecast. My sell-heavy record warns against reflexively fading momentum, so I retain the target rather than deepen the downgrade after today’s rise; the expected downside still warrants Sell.
The AI premium can overpower the earnings forecastAnalyst scenarios, October 8, 2026; same FY2028 earnings estimate in every scenario.
Risks
- Customer expansion could defeat my slowdown forecast: watch retention, new-customer growth and contracts converting into revenue.
- Hosting could enable profitable expansion: watch gross margin recover despite additional cloud costs and hiring.
- Lower interest rates could sustain the AI premium: watch whether valuation remains elevated even as revenue growth slows.
What would change my mind
A company-issued FY2027 revenue outlook above $15 billion, supported by an operating margin above 50% including employee stock awards, would overturn my view.