Hook / Thesis
Xometry is building what it calls an AI-enabled manufacturing platform, and the last three quarters show the recipe working: revenue acceleration, rising gross profit and the first meaningful positive operating cash flow in this cycle. The company has elected to fund scale via low-coupon convertible notes, which increases financial leverage but gives management runway to push its AI product into larger enterprise customers.
This trade idea is a tactical long. The data show an improving P&L (Q1-Q3 2025) with operating losses shrinking - while the business still invests heavily in R&D and go-to-market. If the company can convert revenue growth into operating leverage over the next 2-4 quarters, the stock should re-rate; if it cannot, the new leverage makes downside risk greater. Entry, stop and target levels are below.
What Xometry does - and why it matters
Xometry operates a digital manufacturing marketplace and an AI-enabled engineering/production stack. Customers include engineers, product designers and procurement teams that need parts produced via CNC machining, injection molding, urethane casting, 3D printing and die casting. The company organizes results by U.S. and International segments, with the U.S. contributing the majority of revenue.
Why the market should care: manufacturers and OEMs are steadily outsourcing low-volume, high-complexity work and increasingly demand faster quoting, tighter quality controls and digital workflows. Xometry's value proposition is to combine a marketplace (matching demand and supply) with automation/AI that compresses lead times and reduces quoting friction. If Xometry can turn higher revenue growth into operating leverage and retain customers at higher lifetime value, it shifts from a growth story to a durable software-like margin expansion story.
Numbers that support the thesis
- Revenue acceleration: Q1 2025 revenue was $150.971M (filed 05/06/2025), Q2 2025 was $162.547M (filed 08/05/2025) and Q3 2025 was $180.715M (filed 11/04/2025). That sequence shows quarter-on-quarter gains and supports the narrative of accelerating demand.
- Gross-profit trend: Gross profit moved from $56.331M (Q1 2025) to $65.176M (Q2 2025) to $72.029M (Q3 2025). Gross margin improvement indicates either better mix or improved pricing/fulfillment efficiency on the marketplace side.
- Operating expense discipline versus investment: Operating expenses have increased - operating expenses were $71.722M in Q1 2025, $75.466M in Q2 2025 and $83.088M in Q3 2025 - reflecting continued investment in R&D ($11.171M Q1; $11.008M Q2; $12.524M Q3) and go-to-market.
- Profitability momentum: Operating loss narrowed from -$15.391M in Q1 2025 to -$10.290M in Q2 2025 and -$11.059M in Q3 2025. Net loss also narrowed (Q3 2025 net loss -$11.597M). The pattern is modestly encouraging - losses are smaller even as revenue grows.
- Cash flows and liquidity: After multiple quarters of negative operating cash flow earlier in the year, Q3 2025 reported positive net cash flow from operating activities of $5.792M (filing 11/04/2025) and net cash flow of $4.104M for the quarter. The move to positive operating cash suggests the business is starting to produce real cash as scale improves.
- Balance sheet and capital structure: Total assets stood at $698.877M with liabilities of $425.787M and equity of $273.090M as of 09/30/2025. Noncurrent liabilities increased materially to $331.640M in Q3 2025 - consistent with the company's announced June 2025 $250M 0.75% convertible senior notes offering and refinance (news item dated 06/12/2025).
Valuation framing
The dataset does not list a market cap explicitly, but the market snapshot shows a last trade around $61.84 as of 01/20/2026. Looking at the 12+ month price history, Xometry traded as low as the low-$20s in mid-2024 and ran into the high-$60s then settled around the low-$60s. That historical range - combined with accelerating revenue and improving cash flow - suggests investors are paying for a growth narrative and the potential for margin conversion.
Without a stated market cap or share count in the dataset we cannot compute forward multiples here. Valuation should therefore be viewed qualitatively: the market is pricing a premium relative to the multi-quarter revenue base because of accelerating top-line growth and the prospect of the platform becoming sticky with higher lifetime value. The convertible notes provide near-term runway but also introduce dilution risk if the notes convert; that dynamic is an important part of any valuation model.
Catalysts to watch (2-5)
- Quarterly results confirming margin expansion: If future quarters show operating income moving toward breakeven or positive while revenue grows, that will be the clearest re-rating catalyst.
- Large enterprise customer wins and longer-term contracts: Announcements that Xometry is embedding its AI quoting or manufacturing OS into OEM procurement processes would shift revenue quality and sentiment.
- Progress on AI products and automation: Measurable product releases that shorten lead times or increase automation of quoting/inspection could increase gross margins and utilization.
- Share dynamics around the convertible notes: Any active repurchase program, conversion events or clarification of dilution could move sentiment quickly.
Trade plan - actionable
Trade direction: Long (tactical).
Time horizon: Swing / position - 3 to 9 months (watch quarterly cadence).
Entry: Open to layering at $60 - $64. Current market snapshot shows last trade ~ $61.84 (01/20/2026).
Stop: $54. A break below $54 (~10-12% downside from current) suggests the recent momentum has failed and liquidity/demand could shift.
Targets: Target 1: $75 (near-term upside if margins continue to improve and growth stays high). Target 2: $95 (upside if the company demonstrates durable operating leverage, enterprise traction, and limited conversion/dilution impact).
Position sizing: Given a mix of improving fundamentals and added leverage from convertibles, size positions conservatively - this is not an all-in trade for a growth-to-profit conversion - treat as medium-risk exposure.
Risks and counterarguments
- Execution risk: The company is still incurring operating losses. If increased R&D and SG&A fail to convert into sustainable margin gains, the story can revert to growth-at-any-cost with little return on incremental spend. Operating expenses were $83.088M in Q3 2025 and management must show leverage.
- Balance sheet / leverage risk: The 0.75% convertible senior notes ($250M announced 06/12/2025) materially increased noncurrent liabilities (Q3 noncurrent liabilities $331.64M). If the market reprices based on dilution expectations or funding needs, downside is amplified.
- Competition and marketplace dynamics: Digital manufacturing and quoting automation are contested with incumbents and vertical players. Faster commoditization or price pressure would compress gross margins; gross profit is improving but remains a critical watch item (Q3 gross profit $72.029M).
- Customer concentration / retention: If the company loses large customers or fails to convert new enterprise customers into sticky revenue, the growth trajectory could slow quickly.
- Macro demand sensitivity: Manufacturing demand is cyclical. A macro slowdown would hit order volumes and utilization, reversing the recent positive cash flow trend.
- Counterargument: One could argue the story is priced for perfection. The stock has already moved materially higher from its multi-quarter lows, and while revenues are accelerating, operating losses and heavy investment remain. If investors demand near-term profitability or if conversion of the convertible notes increases share count substantially, current prices may not hold. That is a reasonable short-term bear case and justifies a tight stop and modest sizing.
Conclusion and what would change my mind
Stance: Moderate bullish (long), with guarded risk management. The data show accelerating revenue (Q1->Q3 2025) and gross profit expansion with operating cash flow turning positive in Q3 2025 - the basic ingredients of a platform maturation story. The convertible notes give management runway to invest in AI and GTM to win enterprise accounts, but they introduce dilution and leverage that materially raise the bar for execution.
I will be increasingly constructive if:
- Management reports sequential quarters of margin improvement and positive operating income, not just narrower losses, and
- Company discloses larger, multi-year enterprise agreements or measurable product wins showing stickiness and higher LTV, and
- Conversion dynamics of the convertible notes are clarified in a way that limits near-term dilution or shows repurchase / amortization plans.
I would be more cautious if revenue growth stalls, operating cash flow reverses, or if dilution from convertibles becomes an imminent overhang.
Disclosure: Not investment advice. This is a trade idea based on the company's recent quarterly financials and public filings through 11/04/2025; always do your own due diligence and size positions to risk tolerance.