What happened
Shares of AST SpaceMobile (ASTS 2.57%) soared as much as 50% higher on Wednesday morning after Deutsche Bank initiated coverage with a buy rating and set a sky-high price target.
So what
AST SpaceMobile has attracted a lot of attention since joining public markets back in April via a SPAC merger. The company has a plan to turn the world's cellphones into satellite phones using what it calls a "highly proprietary" technology that it hasn't really explained in full.
Image source: Getty Images.
Deutsche Bank's Brian Kraft is intrigued, initiating coverage with a buy rating and a $35 price target. That target is more than double AST's share price even after Wednesday's rally, but Kraft says the value could ultimately be "significantly higher" than that target if the company can execute on its plan.
The $35 price target is an average of four scenarios, but Kraft notes the extremes of those scenarios include one where the stock is considerably higher, and one where the price turns out to be zero should the tech not work out as the company hopes.
Now what
The market is excited about the upside, but shouldn't sleep on the downside. As Kraft notes we don't know a lot about AST's tech right now, and no one knows whether it will work as designed. As investors have found out over the past year, space is hard, and more often than not ambitious plans take longer than expected to come together, if they do at all.
In this case it might be five years before we know for sure AST is able to do what it hopes to do.
For those who can stomach the risk, Kraft has laid out the potential. But given the risk, it's best to keep this sort of stock to a small, speculative part of a diversified portfolio.
