SpaceX shares have received a new buy recommendation. But the company needs to resolve a major issue

Investors should buy SpaceX stock because Elon Musk’s space company is capable of solving one key problem, Pivotal Research said. Its analysts initiated coverage of the stock with a “Buy” rating and a price target of $220, according to CNBC. This implies upside potential of approximately 50% relative to the current price.

“SpaceX’s successful investment case, with the company’s current valuation at around $2 trillion, depends almost entirely on overcoming a single—admittedly colossal—engineering challenge: the reusability of [of the] Starship [rocket] (that is, 20–50 flights per spacecraft with relatively inexpensive and rapid recovery and redeployment),” wrote analyst Jeffrey Wlodarczyk in a CNBC report.

Starship is a super-heavy-lift launch vehicle currently under development by the company; it has launched 13 times to date, with eight of those launches ending in success, according to CNBC. However, in none of these launches has a previously flown vehicle been reused. If Elon Musk’s SpaceX can solve the reusability problem, Vlodarchak says the company will have a tremendous opportunity to cut costs, increase the capacity of its Starlink satellite internet service, and simplify the deployment of orbital data centers. The analyst added that he is counting on Musk to make a breakthrough in this area.

Unlocking Starship's full potential could give SpaceX a monopoly on the orbital business model, Vlodarchak suggested: the company would be able to charge fees or receive equity stakes in emerging startups in exchange for access to space.

“Investors are debating [the artificial intelligence startup] xAI, the Colossus supercomputer, and the pace of Starlink’s rollout. None of this matters unless Starship works,” he emphasized.

The company's stock rose nearly 4% during trading on September 8.

A wave of active buying of the space company’s securities could begin as early as late September, when the Nasdaq 100 technology index undergoes its quarterly rebalancing, Bloomberg notes. The key factor lies in a little-known rule governing the calculation of the technology index and the phased lifting of lock-up restrictions on shares for investors in Elon Musk’s space company, which had artificially limited the number of shares in free float, the agency explains.

Due to lock-up restrictions, the percentage of SpaceX shares in free float remains relatively modest. As a result, the company accounts for just 1.25% of the Nasdaq 100—ranking 19th in the benchmark—even though it ranks sixth in terms of actual market capitalization, which exceeds $2 trillion, Bloomberg notes. After the rebalancing, SpaceX’s weight could reach 1.51%, triggering $12.5 billion in passive buying by index funds, according to calculations by JPMorgan Securities strategists cited by the agency.

“The market price will now be driven to some extent by forced demand. I think it will be quite some time before the market’s true sentiment toward this security becomes clear,” said Ed O’Gorman, CEO of River Wealth Advisors, as quoted by Bloomberg.

“Either a portion of the recently unlocked shares will come up for sale amid an expected influx of buying, or the stock price will rise thanks to strong support from index funds. The stock should see additional demand from the QQQ (the largest exchange-traded fund tracking the Nasdaq 100— OnInvest) and similar instruments,” noted Steve Sosnik, chief strategist at Interactive Brokers, in a Bloomberg report.

By the end of October, more than 1 billion shares will be released from restrictions, and an additional tranche of 1.3 billion shares will become available for trading after the company releases its third-quarter financial results in mid-November, the agency noted.

Of the 42 analysts covering SpaceX's stock, 32 recommend buying it. Seven are neutral, and only three recommend selling.

This article was AI-translated and verified by a human editor