Citigroup Just Opened a "90-Day Catalyst Watch" on SpaceX, While JPMorgan Chase More Than Doubled Its Price Target. Here's Why Wall Street Is Now So Bullish on the Stock

Since its initial public offering (IPO) in June, Space Exploration Technologies Corp (NASDAQ: SPCX) has been a battleground stock. The company went public at a huge valuation and now trades with a market cap of about $2 trillion.

Meanwhile, the company has continued to raise significant debt as it plans to spend heavily to pursue an ambitious slate of goals, including significantly expanding its artificial intelligence (AI) compute capacity and eventually launching data centers in space.

Although there is still a long way to go, SpaceX has recently been getting a lot of love from Wall Street. Analysts at Citigroup recently opened an "upside 90-day catalyst watch" on the stock, while analysts at JPMorgan Chase just more than doubled their price target.

Here's why Wall Street is so bullish on the stock.

Image source: Getty Images.

A blowout quarter with big promises

After the market closed on Oct. 20, SpaceX reported its third-quarter results, and it was a clear blowout.

Total revenue of roughly $14.6 billion topped Wall Street's average estimate by nearly $1.7 billion. Net income of $4.4 billion also came in significantly better than analysts expected.

Furthermore, SpaceX forecast revenue of $33 billion to $37 billion in the first quarter of 2027, far ahead of earlier estimates of $22 billion.

The stock rose nearly 8% on the day after the earnings.

On the earnings conference call, Chief Executive Officer Elon Musk held nothing back either. He said he expects SpaceX's data center footprint to add 10 gigawatts (GW) of AI compute capacity by the end of 2027, with a small chance the company adds 20 GW.

Musk also said he expects SpaceX to exit 2027 with an annual recurring revenue run rate of between $500 billion and $1 trillion. While analysts will likely take some of Musk's projections with a grain of salt, the earnings report and comments certainly made Wall Street optimistic.

Citigroup analyst John Godyn placed SpaceX on an "upside 90-day catalyst watch," while reiterating his buy rating and lifting his price target to $240, implying roughly 63% upside from current levels.

In a research note, Godyn wrote that SpaceX has gained credibility by beating analyst estimates and raising its outlook.

Godyn sees this continuing in the fourth quarter and also notes that SpaceX's planned number 15 launch of its super-heavy-lift, fully reusable rocket, Starship, could serve as a "monumental space-industry catalyst."

Additionally, JPMorgan Chase analyst Doug Anmuth maintained his outperform rating on the stock and more than doubled his price target from $240 to $500 per share.

Interestingly, Anmuth is taking Musk at his word, writing in a research note that SpaceX can achieve 10 GW of compute and total revenue of $254 billion next year, suggesting the company will exit 2027 at a $400 billion revenue run rate.

Anmuth did note that execution is paramount for this story to come to fruition, including the build-out of the compute, raising all the capital required, and that AI demand also continues.

Should investors buy into the hype?

SpaceX reported a strong quarter, and I certainly think it's fair for the stock to be trading up and for investors to be getting more optimistic about the story. However, I am a bit surprised that some analysts are so positive that they raised their price targets so much.

Although SpaceX has demonstrated a clear ability to build out data centers more quickly and efficiently than its peers, the company ended the third quarter with 1.7 GW of total compute capacity, up from 1.4 GW at the end of the second quarter and 0.6 GW a year ago.

Furthermore, the 10 GW of incremental capacity is for 2027. Musk expects the company to be at 2.5-3 GW of capacity by year-end. So we are still talking about SpaceX expanding capacity by roughly 11.3 GW in about 15 months.

Right now, renting out compute capacity to hyperscalers and other AI companies is the primary driver of revenue, so the near-term stock price is heavily dependent on this business.

Additionally, although Musk has accomplished some pretty amazing things in his life, he's not known for doing them on time. For instance, in 2015, Musk called autonomous driving a "solved problem" with respect to his other company, Tesla.

Although Tesla has rolled out self-driving technology and a robotaxi fleet, it's still hard to know whether the technology has truly been perfected. For that reason, I'm surprised the market is giving Musk and SpaceX the benefit of the doubt right now.

Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Tesla. The Motley Fool has a disclosure policy.