Analyst to SpaceX Investors: You're Valuing SpaceX Like AI Is Almost Worthless

A funny thing happened when Space Exploration Technologies (NASDAQ: SPCX) reported earnings this month. First, SpaceX declined 13.6% despite beats on both earnings per share and sales for the company. SpaceX lost only $0.09 per share in the quarter, where Wall Street had predicted a $0.29-per-share loss. Sales of $7.8 billion eclipsed forecasts by $1 billion.

Potentially worse news for investors, the earnings announcement triggered a "lock-up" expiration, permitting SpaceX insiders to sell 20% of their stock. A second lock-up expires later this week, when SpaceX passes the 70-days-after-IPO mark, allowing another 7% of the stock to be sold.

But instead of continuing to fall, SpaceX stock did a U-turn. It recovered all its losses and by Wednesday's close was back above its IPO price and trading for $140 a share.

And one Wall Street analyst thinks this is only the beginning of the rally for SpaceX stock.

Image source: The Motley Fool.

Morgan Stanley loves SpaceX stock

SpaceX today carries a market capitalization of $1.9 trillion. It has no profit to back up that valuation, granted, thanks to an artificial intelligence division that's losing more than $1 billion per quarter -- and burning through tens of billions of dollars per year.

But that doesn't scare Morgan Stanley one bit.

In a note released last week, MS analyst Adam Jonas argues that SpaceX's non-AI businesses alone support nearly all of the present value of SpaceX stock, based on a combination of forecast sales and "earnings before interest, taxes, depreciation, and amortization" (EBITDA). To hear Jonas tell it, SpaceX AI comes basically free of charge on top of what investors are already paying for the rest of SpaceX.

Valuing SpaceX as a sum of its parts

Here's how the math works.

Over the past 12 months, the Space and Connectivity divisions of SpaceX -- essentially, everything not AI -- generated a combined $17.9 billion in sales and $8.6 billion in EBITDA, according to data from S&P Global Market Intelligence. AI generated $5.1 billion in sales, but negative EBITDA of $313 million.

Jonas, however, foresees incredible growth for SpaceX over the next couple of years, in Space and Connectivity, and especially in AI.

The analyst calculates that earnings from Space and Connectivity justify the first $127 of SpaceX's current $140 share price -- so 91% of the stock's total market cap. Valuing the stock at 52 times 2028 EBITDA, and reverse-engineering Jonas' math, implies a forecast of $31.5 billion in EBITDA for Space and Connectivity in 2028 -- a 266% increase in just two years.

Meanwhile, consensus estimates on Wall Street have SpaceX as a whole generating $126.8 billion in EBITDA in 2028. Backing out the $31.5 billion contribution from Space and Connectivity, the AI division flips from a loss today to a $95.3 billion EBITDA profit just two years from now.

How to value SpaceXAI

This is a bold prediction. Assuming these estimates are correct, investors are valuing Space and Connectivity EBITDA at a 52 multiple. But they're valuing EBITDA from AI at an ultralow 1.7, giving this division a standalone market capitalization of just $162 billion.

What's more, they're doing this even though -- again, assuming Jonas' numbers are right -- SpaceX's AI division will be growing not just sales but profit many times faster than its Space and Connectivity divisions are growing.

Is that fair? Are investors assigning the "right" price to SpaceX AI?

Well, $162 billion might seem like a fair price to pay for an AI business currently generating negative EBITDA. It might even seem generous. But if two years of hypergrowth grow SpaceX's AI division to the point that it's generating 75% of SpaceX's profit, you'd expect investors would happily pay a much higher price for it. Accordingly, Jonas argues that SpaceX stock, which costs $140 today, could easily reach $300 per share within one year -- and potentially hit $600 in a bull-case scenario.

I remain skeptical. With all due respect to Jonas, I'm going to wait and see SpaceX's AI division prove that it can earn any profit at all before engaging in speculation about how fast it can grow its profit. Still, the possibility is intriguing.

If Jonas' estimates bear fruit, SpaceX stock could be a screaming buy.

Rich Smith 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.