SpaceX Stock Trades Near $140 While Wall Street's Average Target Sits Above $232. Who's Right?

After its historic IPO, which initially priced shares at $135, Space Exploration Technologies (NASDAQ: SPCX) stock quickly soared, setting an all-time high of $225.64 on June 15. The space stock quickly lost its luster, however. Over the following months, SpaceX's stock price has fallen back to near its initial IPO valuation.

Wall Street analysts largely remain unperturbed. On average, analysts have a $232.35 price target on shares, implying more than 68% upside from today's price. One analyst, Andrew Beale from Arete Research, even has a $450 price target on the stock, suggesting at least 200% in upside over the next 12 months.

Not all experts are SpaceX bulls. Glenn Thum of Phillip Securities, a Singaporean investment bank, currently rates SpaceX stock as a sell. His price target of $75 implies 45% downside over the year to come.

In other words, while Wall Street remains very bullish on SpaceX on average, individual predictions range widely. What should investors make of this apparent disagreement? The answer is surprisingly simple.

Wall Street predictions for SpaceX stock hinge on this catalyst

SpaceX disclosed plenty of important details during its second-quarter earnings call. But most of the critical details regarding SpaceX's long-term growth potential remain in the company's original IPO prospectus.

To understand Wall Street's price projections, it's necessary to first understand where SpaceX believes it has the most growth potential.

"We believe we have identified the largest actionable total addressable market in human history," SpaceX declared near the start of its IPO prospectus. "We estimate that our quantifiable TAM is $28.5 trillion, consisting of $370 billion in Space from space-enabled solutions; $1.6 trillion in Connectivity across $870 billion in Starlink Broadband and $740 billion in Starlink Mobile as well as additional opportunities in enterprise and government; $26.5 trillion in AI across $2.4 trillion in AI infrastructure, $760 billion in consumer subscriptions, $600 billion in digital advertising, and $22.7 trillion in enterprise applications."

Immediately, we can understand what any forecast for SpaceX stock must hinge on: the success of its AI segment, which constitutes 93% of the company's total claimed long-term growth opportunity.

Image source: Getty Images.

To be sure, SpaceX's other segments -- which include its rocket launch business and its Starlink internet service -- should prove valuable over time. Its Starlink segment is already profitable, with impressive subscriber growth and operational leverage. Its rocket division, meanwhile, is arguably the best in the world, and should prove critical for enabling other growth opportunities such as orbital data centers.

But the combined total addressable market for those two segments, according to SpaceX's likely rosy estimates, is just $2 trillion. That's not much higher than SpaceX's current stock price. For the company to make sense as an investment, then, it must have meaningful success in scaling its AI business.

Indeed, this is largely why Thum of Phillip Securities has a sell rating on the stock. Thum is worried about the massive capital expenditures necessary for scaling SpaceX's AI division, as well as its alarming customer concentration. Nearly 20% of second-quarter revenue came from a single AI customer.

Other analysts, however, are incredibly bullish on SpaceX stock because they believe in the company's AI vision. Goldman Sachs, for example, sees SpaceX's AI revenue surging 100-fold by 2030. There will be some growing pains involved. Goldman Sachs projects negative cash flow of $105 billion in 2029, before it becomes cash-flow-positive in 2030 or 2031.

The spread in analyst projections largely reflects differences in how each analyst sees SpaceX's AI ambitions faring. It will take years to know the answer. But a long-term investment in SpaceX stock hinges almost solely on how large and how quickly the company can scale this division. How profitable this division is once scaled, meanwhile, is a completely different question.

Wall Street analysts have different estimates for SpaceX's Starlink and rocket launch growth rates. But make no mistake: SpaceX's valuation will ultimately be a function of the relative success or failure of its AI business.

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.