Space Exploration Technologies (NASDAQ: SPCX) stock remains exceptionally volatile. Shares currently trade about 17% lower than their first-day closing price back in early June. At various times this year, shares have rapidly shed more than one-third of their value, only to surge higher again by more than 50%.
The market seemingly can’t make up its mind about SpaceX’s valuation. Neither can the experts.
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By one metric, most of Wall Street is in agreement regarding SpaceX stock. Out of 35 analysts covering the space stock, 29 have “buy” ratings, six have “hold” ratings, and just one has a “sell” rating. The consensus price target is around $250, indicating more than 86% upside potential.
It has a buy rating, but at what price?
When digging deeper, however, it becomes clear how divided Wall Street is. Some bullish analysts have price targets under $200. Others have price targets as high as $500. Somewhere in the middle is Morgan Stanley, with a price target of $300, implying more than 124% upside over the next 12 months.
Legendary investor Michael Burry — a hedge fund manager who made billions for investors by shorting the U.S. housing market during the 2008-09 financial crisis — disagrees.
“Nothing in that S-1 suggests it is worth $1 trillion let alone $2 trillion,” Burry warned this summer, referring to SpaceX’s IPO prospectus. Burry became even more cautious after SpaceX’s valuation shot higher following its IPO. “At $2.8 TRILLION market cap, SpaceX, which is fundamentally a small space company, a niche telecom, a bedeviled social media company, and a Coreweave-light, has less than $20 billion in total revenue,” he highlighted. “Any move up will be on hype and technicals.”
With these concerns in mind, why does Morgan Stanley remain so bullish? Morgan Stanley’s $300 price target comes down to a few key assumptions.
Here’s why Morgan Stanley believes in SpaceX stock
Nearly every analyst who covers SpaceX stock and is bullish focuses on one key operating segment: AI (artificial intelligence). According to SpaceX’s own IPO prospectus, AI represents more than 90% of the company’s total addressable market. Any bullish stance on SpaceX stock, therefore, can be assumed to include bullish assumptions regarding the company’s AI segment.
Morgan Stanley, however, isn’t just bullish on SpaceX’s AI segment. Instead, analysts at the bank’s investment arm are optimistic about how SpaceX’s other segments will create synergies with its AI efforts. “We see the company as one of the few platforms that can link real estate in orbit, global connectivity, and compute capacity into one infrastructure stack,” Morgan Stanley analysts explain.
In another note, the firm stressed that SpaceX’s AI business is “the part of the SPCX story that we believe holds the greatest growth potential.” The firm added that rockets and satellites will prove key to generating AI revenue. That’s because SpaceX’s Starship rocket will prove key to getting satellites into orbit cheaply at scale.
Those satellites, meanwhile, can be used not only by SpaceX’s Starlink division to provide more connectivity services — currently, a high-cash-flow contributor to SpaceX’s bottom line — but also to support orbital data centers. Orbital data centers could give SpaceX a cost and availability edge over other big tech competitors, though questions remain about the economic viability, as well as the technological and physical constraints of data centers in space.
This is the major difference between how Burry and Morgan Stanley view SpaceX stock. Morgan Stanley believes in synergies among SpaceX’s business segments and forecasts significant AI growth driven by them. Burry, meanwhile, is more skeptical.
Notably, Morgan Stanley analysts affirm the potential for Burry’s pessimistic valuation in their bear case. “Our $75 bear case assumes Starship slips to 2029 and AI monetization and deployment speed miss expectations, leaving Space and Connectivity at roughly 90% of valuation,” Morgan Stanley analysts explain. “Ability to secure necessary capital is one of the greatest risks to our forecasts.”
Morgan Stanley’s bull case relies on SpaceX tapping huge amounts of new capital throughout the rest of the decade. Burry’s argument essentially rests on one thing: The simultaneous success and synergistic potential of SpaceX’s three segments combined with continued affordable access to capital for years on end is a difficult bet to make. It’s hard to disagree with that sentiment. Which is why, like Burry, I am not long or short SpaceX stock but simply on the sidelines.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.
