SQM's Geopolitical Hype Clashes with DeepValue's Valuation Caution, Highlighting Overextended Stock

What happened

SQM's stock has surged 124% since April 2025, driven by a Seeking Alpha article that touts geopolitical benefits from a US stockpile bill and legal maneuvers to bypass trade restrictions. The article emphasizes SQM's pivot through record Australian spodumene volumes and the Codelco JV as shields against protectionism, painting a bullish picture. However, DeepValue's report reveals that at $79.58, SQM trades at 44x trailing P/E, pricing in a robust lithium recovery with limited upside beyond $95 in bull scenarios. Critical risks include high leverage, ongoing Chilean ESG audits, and a state-majority structure from 2031 that could cap economic returns. Despite the optimistic narrative, the stock's valuation appears stretched, warranting skepticism toward promotional claims.

Implication

The geopolitical narrative may support short-term momentum, but SQM's elevated multiples offer asymmetric downside if lithium prices or Chilean regulations disappoint. Long-term, the Codelco JV ensures Atacama access but introduces higher state take and political risk, potentially compressing shareholder returns. Bearish scenarios suggest a 25% drop to $60 if lithium prices stagnate or ESG issues escalate, outweighing the modest 20% upside to $95. Investors must monitor FY 2025 results and lithium price trends for signs of sustainable recovery before considering entry. Patience for a pullback to $60-65 or clear evidence of margin expansion is prudent given the skewed risk-reward profile.

Thesis delta

The Seeking Alpha article reinforces bullish sentiment on SQM's regulatory and geopolitical advantages, but it does not change DeepValue's core thesis of an overvalued stock with significant downside risks. No fundamental shift is indicated; instead, the article's propaganda-like tone underscores the need for critical analysis against SQM's high valuation and ongoing challenges. Investors should maintain a cautious stance, aligning with the report's recommendation for trims and patient entry points.