SQM Q1 Earnings Surge 165% But Valuation Concerns Persist

What happened

SQM reported Q1 2026 net income of $364.7 million, up 165% year over year, driven by improved lithium prices and volumes. The strong result underscores the cyclical recovery in lithium markets and SQM's low-cost Atacama advantage. However, the stock has rallied 105% over the past year, pushing trailing P/E to ~44x and EV/EBITDA to ~22.5x. The DeepValue master report maintains a POTENTIAL SELL rating, citing execution, ESG, and leverage risks amid heavy capex and uncertain pricing. While the earnings beat is encouraging, the risk/reward at current levels remains unattractive given modest upside to the bull case and significant downside if lithium prices falter.

Implication

SQM's Q1 earnings demonstrate the power of its low-cost asset base during a lithium recovery, with net income surging 165% YoY to $364.7M. However, the stock now trades at 44x trailing earnings and 22.5x EV/EBITDA after a 105% rally, embedding optimistic assumptions about lithium prices and the NovaAndino ramp. The DeepValue master report flags key risks: aggressive capex of ~$2.7B over three years, rising net debt/EBITDA to 2.95x, and unresolved ESG and water constraints at Atacama. With the base case target at $80 and bear case at $60, the current price of ~$79 offers limited upside and material downside if lithium price recovery stalls or regulatory issues resurface. We recommend taking profits on strength and re-entering near $60–65, where the risk/reward improves significantly.

Thesis delta

The Q1 beat confirms the cyclical recovery thesis but also validates the stock's substantial rally. Our view shifts from neutral to cautious: the earnings strength is already priced in, and the elevated valuation leaves little room for error. We now see a more balanced risk/reward, favoring trimming positions.