Defense And Space Integration Will Support Recurring Platform Upside Over Time

Catalysts

About Velo3D

Velo3D provides metal additive manufacturing systems and rapid production services for high performance parts in aerospace, defense, space, semiconductor and energy markets.

What are the underlying business or industry changes driving this perspective?

• The shift from a one time hardware model toward a recurring platform built around Rapid Production Services, software and services is increasing the share of predictable revenue. Management links this to expanding gross margins and a clearer path toward EBITDA profitability.
• Growing integration into U.S. defense and industrial supply chains through programs with the U.S. Navy, Army DEVCOM AvMC and munitions and shipbuilding efforts positions Velo3D to benefit as customers move production onshore. This can support backlog growth and future revenue visibility.
• Rising adoption in space, semiconductor and energy, with management calling out these four sectors as the main focus, points to a widening customer base in complex, high value parts. This can support a higher quality revenue mix and potentially better net margins as RPS scales.
• AS9100D certification for the RPS Quality Management System and the integration of Dyndrite's LPBF Pro software for AI driven tool path optimization can deepen Velo3D's role in mission critical aerospace and defense programs. This can support higher utilization of installed systems and improved earnings leverage on existing infrastructure.
• The strengthened balance sheet after the US$17.5 million offering and cash and equivalents of US$11.8 million at quarter end give Velo3D room to invest in capacity, materials R&D and automation. Management connects this to its plan for sequential gross margin improvement to 30% or higher and a transition toward EBITDA profitability.

Assumptions

This narrative explores a more optimistic perspective on Velo3D compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Velo3D's revenue will grow by 44.8% annually over the next 3 years.
• The bullish analysts are not forecasting that Velo3D will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Velo3D's profit margin will increase from -147.8% to the average US Machinery industry of 9.9% in 3 years.
• If Velo3D's profit margin were to converge on the industry average, you could expect earnings to reach $14.8 million (and earnings per share of $0.58) by about February 2029, up from $-72.7 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 55.3x on those 2029 earnings, up from -3.6x today. This future PE is greater than the current PE for the US Machinery industry at 29.7x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business still reports a GAAP net loss of $11.8 million and an adjusted EBITDA loss of $7.3 million in Q3 2025. If the shift to a recurring RPS platform takes longer or proves less profitable than planned, the company may need additional capital raises that dilute shareholders and weigh on future earnings and earnings per share.
• Gross margin in Q3 2025 is 3.2% and relies in part on higher RPS volume and a move to build-to-order systems. Any slowdown in RPS adoption or weaker pricing on new machines could keep margins at low single digits and delay any improvement in net margins and overall profitability.
• The long-term thesis leans heavily on defense, space, semiconductor and energy. The call highlights exposure to government funding cycles and a government shutdown that can affect bookings timing, so extended disruptions or changing defense priorities could hit backlog conversion, revenue and cash flow visibility.
• Backlog of $21 million and revenue guidance of US$50 million to US$60 million for 2025 depend on customers ramping production and sticking with Velo3D systems. If customers revert to traditional manufacturing or competing additive platforms, that could limit repeat orders and slow revenue growth from the key RPS segment.
• The company has cash and cash equivalents of US$11.8 million after an equity offering of US$17.5 million, which strengthens liquidity in the near term. However, if capital expenditure of US$15 million to US$20 million and ongoing losses continue longer than expected, the need for further funding could pressure the balance sheet and constrain future investment in R&D, capacity and margin improvement initiatives.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Velo3D is $25.0, which represents up to two standard deviations above the consensus price target of $21.5. This valuation is based on what can be assumed as the expectations of Velo3D's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $18.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $149.1 million, earnings will come to $14.8 million, and it would be trading on a PE ratio of 55.3x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $12.6, the analyst price target of $25.0 is 49.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.