Bank of America sets alarming SpaceX stock price target

SpaceX (SPCX) stock is trading near $153 on July 9. All the initial gains since its IPO have been wiped out, despite the stock's inclusion in the Nasdaq-100, and a slew of high price targets coming from big Wall Street banks.

Goldman Sachs initiated the stock with a price target of $205. Morgan Stanley went even higher, setting a price target of $300. These banks were two leading underwriters for the IPO, so their having high price targets is not surprising.

In a research note shared with me, Bank of America analyst Ronald J. Epstein and his team also presented a bullish price target of $235 on SpaceX stock. Bank of America was also one of the underwriters for the IPO, so again, it was not much of a surprise.

However, what is alarming is the palpable difficulty a fairly large analyst team has had in coming up with a way to back that price target. Even more important is that, once risks to the price target are examined, the price target makes no sense and leaves a strong impression that it is nothing but peak AI bubble hype.

Readers unaware that SpaceX is an artificial intelligence company first and foremost should read its S-1. It clearly states that the company estimates its total addressable market (TAM) at $28.5 trillion, of which $26.5 trillion, or 92.98%, is expected to come from AI.

Bank of America believes that "launch leadership enables everything else"

The team based the price target on average long-term discounted cash flows for their base, bull, and bear cases, across different revenue and cash-generation scenarios between now and 2045.

A discounted cash flow model is usually conducted over a period of 5 to 10 years, according to Harvard Business School.

Developing a model with a period of almost 20 years is something you come up with when you have trouble making a valuation.

Price targets are generally given to be valid for the next 12 months, and even then, they are often tweaked when quarterly earnings are released or when something else changes the view of the stock.

Analysts noted SpaceX's success in converting launch and manufacturing capabilities into a business called Starlink. It seems they believe this can be done again for AI.

Epstein wrote: "The result is a powerful flywheel, where launch enables space applications, applications generate cash flow, and those cash flows support further infrastructure investment."

Bank of America flags "investment negatives" for SpaceX