SpaceX Stock Is Down 33% From Its High. Here's Why Morgan Stanley Thinks There's 106% Upside From Here.

In June, SpaceX (NASDAQ: SPCX) successfully completed its blockbuster IPO, raising more than $85 billion. In the days that followed, SpaceX's market cap soared from an initial IPO valuation of $1.77 trillion to nearly $2.8 trillion. Shares corrected hard after the surge, however, and SpaceX's valuation now hovers just below $2 trillion -- a 36% decline versus the company's all-time high.

Morgan Stanley (NYSE: MS) analysts remain unfazed regarding the space stock's long-term growth potential. On Sept. 15, the bank reiterated its "buy" rating on shares, affirming its $300 price target. That price target implies more than 100% in near-term upside over the next 12 months.

Why does Morgan Stanley remain so bullish? The answer might surprise you.

Here's why Morgan Stanley loves SpaceX stock

Morgan Stanley appears all-in on the space economy. The bank, in many ways, predicted SpaceX's meteoric rise years before much of the public caught on.

"[A] new space age is dawning, setting technological goals that would have seemed the stuff of Isaac Asimov in 1969," Morgan Stanley analysts concluded in a 2020 report. "Although the 'space unicorns' have caught the eye of news media, hundreds of other new start-ups have formed in the past several years to explore opportunities in space infrastructure -- satellite manufacturing, launch capabilities, IT hardware -- and adjacent areas, such as space tourism, satellite broadband, media, and even asteroid mining."

Notably, this 2020 report warned investors that the biggest returns would be realized by long-term investors.

"Because success in space promises to be a multidecade endeavor -- with returns on some lofty endeavors that could be many years away -- this new economy requires patient investors," the bank stressed. "For some of these funds, the exit plans can be 50 years out."

Image source: Getty Images.

Indeed, Morgan Stanley's latest outlook on SpaceX stock continues to stress the importance of long-term thinking. But Morgan Stanley's bullish $300 price target on shares isn't predicated on the space economy. Instead, it's heavily focused on AI opportunities, which, according to SpaceX, comprises $26.5 trillion of the company's total $28.5 trillion addressable market.

According to Morgan Stanley analyst Adam Jonas, SpaceX has become "a potential generational compounder that converts energy into a networked/swarming intelligence at scale." In layman's terms, Jonas is predicting that SpaceX will be able to aggressively and sustainably scale its AI compute infrastructure to serve the world's rapidly growing appetite for AI services.

"SPCX has the pieces to build an industry-leading intelligence per watt, per dollar, per second," Jonas adds. Again, in layman's terms, Jonas is arguing that SpaceX's AI compute infrastructure has the potential to be cheaper, faster, and more energy efficient than the competition, advantages that stem from scale, strategy, and vertical integration.

Half of Morgan Stanley's $300 price target is justified by the growth potential of SpaceX's AI business. That's over the short term, however, Long term, even SpaceX concedes that more than 90% of its total growth potential lies with AI. The company's space endeavors -- which include everything from orbital data centers to lunar-based GPU production -- will largely support SpaceX's core AI business.

So whether you're looking at Morgan Stanley's near-term projections or SpaceX's long-term market estimates, AI will remain the primary driver of SpaceX's valuation for years to come.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.