Why Wall Street is bullish on SpaceX
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Wall Street's sell-side analysts published a slew of bullish reports on SpaceX Tuesday, while cautioning that years of massive investments will be needed to bring Elon Musk's vision for the company to fruition.
Why it matters: These notes are some of the clearest and most well-informed public statements yet on the financial prospects for SpaceX.
Catch up quick: The company last month raised about $86 billion in what was the world's largest-ever IPO.
- The notes were published Tuesday at the end of the 25-day "quiet period" for banks that served as underwriters on the IPO — virtually all the major players on Wall Street.
What they're saying: "Buy," overwhelmingly, with 80% of the 21 analysts tracked by financial data firm FactSet having a "buy" or "overweight" recommendation on the shares.
- Analysts have a consensus price target of roughly $247 on the stock, which implies a premium of more than 60% to where the shares closed Tuesday.
- Just 10% of analysts tracked by FactSet have a "sell" or its equivalent on SpaceX.
The latest: After surging in the days after their June 12 debut, shares of SpaceX have since struggled.
- On Tuesday, the stock was scrambling to stay above $150, where it first traded.
The big picture: SpaceX's strength is its dominance of the space launch industry, which should lead to strong growth in the sale of satellite-based internet and cell phone services, analysts say.
- The cash created by that business will help fund Musk's costlier ambitions around AI.
- "The result is a powerful flywheel, where launch enables space applications, applications generate cash flow, and those cash flows support further infrastructure investment," Bank of America analysts wrote.
Caveat: That AI infrastructure investment will consume far more cash than the satellite business will churn out.
- Morgan Stanley analysts note that "high spending needs ($300 billion capex/year by 2031) means [SpaceX] is not [free cash flow] positive on our forecasts before 2035, requiring, on average, ~$84 billion of external capital needs per year from 2027-2034. Ability to secure necessary capital is one of the greatest risks to our forecasts."
- Goldman Sachs analysts, likewise, note that "we see SpaceX in need of ~$270 [billion] of debt capital to be raised between 2026-2030 (inclusive of recent $25 [billion] debt capital raise being a first step) to operate from this moment toward when we have the company becoming free cash flow positive in Q4 2030."
The bottom line: SpaceX's survival relies, to a large extent, on Musk's ability to continue to coax a seemingly endless flow of money out of financial markets.
- He's been able to do this through his command over investor attention, thanks to sci-fi visions of the future, as well as the weight his status as the world's richest man and CEO of two of its largest companies gives him over Wall Street.
Case in point: The early addition of SpaceX to the Nasdaq 100 Tuesday, after Nasdaq fast-tracked the company's inclusion in the index.
- SpaceX made listing the IPO on the Nasdaq exchange contingent on the rule change, Reuters has reported.
A cynic might also see commercial incentives at play in the overwhelmingly positive analyst commentary on SpaceX.
- After all, the capital that SpaceX needs will mostly be raised through those same Wall Street firms, generating lucrative fees for them.
Reality check: It would take a courageous analyst to stamp a "sell" rating on SpaceX and risk costing the bank they work for the many millions of dollars of underwriting fees that SpaceX capital raises will likely generate.
