The Rolls-Royce (LSE:RR) share price is on track to deliver another stellar year of gains for investors. It’s up 114% over the past year, trading higher on an almost daily basis. As we know, predicting exactly where it will go from here is incredibly difficult. With that in mind, I wanted to present my own view with ChatGPT’s AI bot and see if we’re on the same wavelength.
A few seconds of thinking
ChatGPT took 26 seconds to generate an in-depth response for me. It expects the stock to finish the year around 1,250p. For reference, the current share price is 1,126p. It provides some other potential outcomes, with probabilities of the base case 1,250p view at 55%, a move to 1,500p at 25% and a fall to 900p at 20%.
In terms of reasoning, it spoke of how Rolls-Royce delivered strong H1 2025 operational results and materially upgraded guidance. The AI model feels that it supports further share price gains as a result. It also mentioned that the high order intake and backlog are strong. This provides revenue visibility and supports continued profit margin expansion.
Points to be aware of
At a general level, I support the view that Rolls-Royce shares could deliver further gains through to the end of the year. However, I disagree with the reasoning given. The strong H1 results helped to fuel a rally when they came out at the end of July. Most of the good news from that release has already been factored into the current share price.
Instead, I think the stock is currently being driven by optimism around factors such as growth with small modular reactors (SMR). Last week, the UK government opened a public consultation for the application for Rolls-Royce SMR’s design. This is an early regulatory step to get the ball rolling for it to be used as a more widespread technology.
Another positive factor for the stock has been the continued outperformance of airline stocks. From quarterly updates that I’ve seen, various operators are reporting higher passenger numbers and strong demand for Q4. Given the knock-on benefit Rolls-Royce gets from the civil aviation division, this has helped the stock.
The coming months and beyond
With the sharp move higher, the price-to-earnings ratio sits at 56.11. This is very high, which could make it vulnerable if we get a market sell-off. For example, the drop late last week, driven by tariff concerns between the US and China, saw investors sell growth stocks like Rolls-Royce. If sentiment really sours before the end of the year, the stock could be hit even more.
Another risk is the lofty expectations investors now have for the company. The next trading update is due in a month or so, and even if it’s ok, the share price could be under pressure due to the high benchmark set.
On balance, I do agree with ChatGPT that the stock can move higher if we don’t get any volatility that rocks the boat. But I don’t feel it has accurately factored in the reasons for any potential move. That’s where human judgment still has a place in investing. I think it’s a stock for investors to consider.
