Morgan Stanley believes the recent sell-off in Space Exploration Technologies Corp (NASDAQ: SPCX) has become overdone, arguing that investors are assigning virtually no value to the company's AI business, despite it being a key pillar of the bank's bullish thesis.
This latest bullish call puts leveraged ETFs tied to the SPCX stock back in the spotlight.
Analyst Adam Jonas reiterated his buy-equivalent rating on the stock and maintained a $300 price target, with more than half of that valuation tied to SpaceX's AI operations, including Grok and Cursor. Jonas said, according to a Bloomberg report, that many investors expect the stock to fall toward $100 once insider lockups expire next month, a level where the market would be implying "zero or even negative value" for the AI segment.
"We believe the current disconnect between increasingly bearish investor sentiment and largely unchanged fundamentals creates an attractive entry point in SpaceX shares," Jonas wrote.
The average price target from analysts for SpaceX is $278. This means that the stock is expected to grow more than double over the next year, crossing $3.5 trillion in valuation, according to Bloomberg.
Bullish SpaceX ETFs Need Morgan Stanley to Be Right
The call carries significant implications for the growing lineup of single-stock leveraged SpaceX ETFs, including the Leverage Shares 2X Long SpaceX Daily ETF (NYSE: SPCH), GraniteShares 2x Long SpaceX Daily ETF (NYSE: SPCG) and T-REX 2X Long SpaceX Daily Target ETF (NYSE: SPAX), all of which were launched to capitalize on what many expected would be sustained enthusiasm following SpaceX's blockbuster IPO.
These funds seek to deliver twice the daily return of SpaceX shares, making them highly sensitive to changes in investor sentiment.
If Morgan Stanley's view proves correct and the market begins assigning greater value to SpaceX's AI business, these ETFs could be among the biggest beneficiaries. A sustained rebound in the underlying stock would translate into amplified daily gains for leveraged long products.
However, if investors continue to view AI as a cash-intensive business with uncertain economics, bullish SpaceX ETFs could remain under pressure even if SpaceX's Starlink and launch businesses continue to perform well.
Bearish ETFs Could Keep Winning
The same uncertainty has created opportunities for investors betting against the stock.
Funds such as the Leverage Shares 2X Short SPCX Daily ETF (NYSE: SSPC) and GraniteShares 2x Short SpaceX Daily ETF (NYSE: SNK) are designed to profit when SpaceX declines.
Should the stock drift toward the $100 level anticipated by many investors ahead of the insider lockup expiration, these inverse ETFs could continue outperforming their bullish counterparts.
The divergence illustrates how the Morgan Stanley thesis is becoming a key catalyst for both sides of the leveraged ETF trade.
Volatility Remains the Biggest Tailwind
Ironically, the recent turbulence may be positive for ETF issuers regardless of where the stock ultimately heads.
Unlike traditional index ETFs, single-stock leveraged ETFs are primarily short-term trading instruments. Their appeal depends less on whether a stock rises or falls and more on how much it moves each day.
SpaceX has already demonstrated the type of volatility traders seek, soaring nearly 50% in its first three trading sessions before surrendering most of those gains over the following month. Such swings typically drive higher trading volumes, tighter spreads and greater use of both leveraged long and inverse products.
That dynamic has previously fueled strong trading activity in leveraged ETFs linked to Tesla, Nvidia and MicroStrategy.
AI Will Likely Determine the Next Phase for SpaceX ETFs
For now, Morgan Stanley believes that the market is undervaluing SpaceX's AI business. Most investors it spoke with, however, continue to heavily discount the AI segment because of its massive capital requirements and uncertain path to profitability.
As that debate unfolds, SPCX, SPCG, SPCXX, SPCXD and SPCS are likely to remain among the most closely watched single-stock ETFs, offering traders leveraged ways to express either confidence in Morgan Stanley's bullish outlook or skepticism that SpaceX's AI ambitions will justify the premium valuations many had expected after the IPO.