One Wall Street Analyst Sees More than 400% Upside in SpaceX Stock. Why I'm Still Not Buying.

Following a quiet period for IPO underwriters, Wall Street firms were out with a bevy of largely bullish stock initiations on Space Exploration Technologies (NASDAQ: SPCX), or SpaceX. But one certainly stood out from the rest. Raymond James, which was an underwriter on the IPO, started coverage of the stock with a "strong buy" rating and a whopping $800 price target.

Now it's worth noting that early analyst ratings of recent IPOs tend to be bullish. After all, the firms that are underwriters on an IPO make a lot of money, and they aren't going to get a lot of new business if they start coming out bearish on a recent IPO with which they were associated. The industry can try to set up the biggest "ethical walls" it wants, but you can guarantee that big new IPOs are getting an initial bullish rating from underwriting firms.

However, Raymond James certainly took this to another level with a price target on SpaceX light-years above any other Wall Street firm. Analyst Brian Gesuale centered his bullish thesis on SpaceX becoming "the foundational platform for the next generation of industrial capacity" across various industries.

The core argument of his thesis is that his next-generation massive reusable rocket, Starship, will make space transportation so cheap that it will help create new industries that don't yet exist. This includes things like using the rocket to fly cargo across Earth in under an hour, mining asteroids, and building AI data centers and factories in space.

Gesuale projects that SpaceX will generate more than $837 billion in revenue in 2031 and $696 billion in EBITDA (earnings before interest, taxes, depreciation, and amortization). He said his $800 target is based on a 27x exit multiple applied to his discounted cash flow projections.

Don't buy the hype

In my view, Raymond James' $800 price target on SpaceX is trying to bolster a speculative stock with more hopes and dreams. First, Starship has to demonstrate that it can be launched routinely and reused to dramatically reduce launch costs and increase payload capacity. But that is just step one.

Earth-to-Earth cargo transportation in under an hour is an interesting concept, but there would be many safety, regulatory, and infrastructure obstacles to overcome, and the economics of such a business are uncertain. I don't believe this will be up and running in the next five years, and it would be hard to imagine the U.S. and China suddenly working together to build the infrastructure needed for this work.

AI data centers in space are something multiple companies are pursuing, given that they can be powered by solar and have access to nearly endless sunlight, but, once again, there are major hurdles to overcome. Eliminating the impact of cosmic radiation on AI chips is a big one, as is finding a way to cool systems in the vacuum of space. Then there is the whole cost of building and servicing an orbital data center.

Image source: The Motley Fool.

Asteroid mining, meanwhile, would require breakthroughs in robotics and extraction, and it may not be economically viable. AI factories also seem like a niche that likely may not really be necessary.

At $800, SpaceX would be an over $10 trillion company. The stock is not valued based on any of its current businesses, as it generated just $19 billion in revenue last year and posted an operating loss. Its Starlink business is a solid, growing recurring business, although it is set to see increased competition. Meanwhile, SpaceX's mobile Grok app has been losing market share, according to Apptopia data.

Not only is Raymond James' $800 target likely highly unrealistic, but it also wouldn't surprise me if the space stock is lower over the next year, as it faces multiple lock-up expirations that will release more shares into the market.

Geoffrey Seiler 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.