Morgan Stanley (NYSE:MS) says SpaceX (NASDAQ: SPCX) is approaching a price where investors won’t give the AI unit any value right now.
The bank’s entire case hinges on the possibility of the price falling to $100 per share, a number that most traders take into account after opening a selling opportunity to insiders. According to analyst Adam Jonas, at this price, the company’s AI segment will not be valued at all.
The stock has already had a rough start. SpaceX raised a record $86 billion when it went public in mid-June at $135 per share.
There was a rush among buyers initially, which drove the price up nearly 50 percent over three sessions to more than $225. This euphoria quickly faded. The stock has since fallen below the issue price and is now trading at $110.85, 18 percent below the issue price.
Morgan Stanley links most of its SpaceX target to artificial intelligence
Jonas maintained a $300 price target for SpaceX, with more than half of that number coming from its AI business. “We believe the current disconnect between increasingly bearish investor sentiment and largely unchanged fundamentals creates an attractive entry point into SpaceX shares,” he wrote on Friday.
His note said many investors are preparing to decline when the lockdown ends next month. The company plans to hold its first earnings call on August 4. Two days later, on August 6, insiders will be allowed to sell up to 911.5 million shares.
This would nearly double the number of shares available for trading and could add more pressure if early holders decide to cash out.
The market is devaluing Grok and Cursor, Jonas said. “Most investors we talk to significantly undervalue Grok & Cursor,” he wrote. He added: “Many attribute zero or even negative value to AI due to the high capital expenditure requirements related to space and connectivity, the highly uncertain economy, and the high degree of management time devoted to the business.”
This concern is not limited to SpaceX. Investors have been selling technology names that plan to pour hundreds of billions of dollars into artificial intelligence chips, data centers, power, networking and other support systems.
High oil prices added another problem. Tensions between the United States and Iran have raised fears of inflation, while an uncertain economy has made traders less willing to hold risky assets, including cryptocurrencies and high-growth stocks.
Wall Street remains strongly bullish. Bloomberg data shows that nearly 80% of analysts covering SpaceX rate it a buy. The average target is around $232, which is more than double recent levels.
Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Citigroup (NYSE: C), and JPMorgan Chase (NYSE: JPM) gave the stock buy ratings after helping Morgan Stanley lead the IPO. Jonas is among the top bulls, with the third-highest target out of 33 analysts.
Tesla’s losses add pressure as Musk delays key product plans
The mood around Elon Musk’s companies has changed in a matter of weeks. One month after SpaceX’s listing made him the world’s first trillionaire, investors are starting to focus on the cost of his promises.
SpaceX has lost more than $1 trillion from its peak. However, its value of $1.57 trillion and Tesla’s value of $1.26 trillion remain among the largest public companies in America.
Tesla (NASDAQ: TSLA) faced its own punishment. The electric car company missed earnings expectations, reported negative cash flow for the first time in two years, and fell 14.5% on Thursday. This decline erased about $215 billion of its value.
The findings fueled broader concerns that technology companies are spending too much on artificial intelligence before the returns become clear.
During Tesla’s earnings call, Elon pushed back on previous timelines for the Robotaxi service, the Optimus robot, and the long-awaited electric semi truck.
Investors have been paying extra for ambitious plans at both companies, based on Tesla’s standing in electric vehicles and SpaceX’s rocket launch business.
Supporters say Elon monitors markets before they fully exist. Elon said he wants the two companies to become major players in AI, although they are still catching up with companies that entered earlier.
