Are SpaceX bulls deluding themselves? This Wall Street analyst might convince you so

It's been over a month since the Space Exploration Technologies (NASDAQ: SPCX) IPO, and the shine may be starting to come off.

SpaceX stock sank below its $135 IPO price for the first time on July 15, and today, it hit an all-time low, closing down 6.7% at $115.26 on a broader sell-off in the software sector.

Wall Street, which lined up behind the stock to push the IPO in unprecedented fashion, has released a bullish set of price targets, following the end of the stock's quiet period.

Of the 13 analysts covering the stock, the lowest price target belongs to Needham at $200, implying a roughly 70% gain in the stock over the next year.

The average price target on the stock is $278, implying the stock will more than double over the next year, reaching a valuation of more than $3.5 trillion, and the Street-high target is Raymond James' $800, which would make SpaceX easily the most valuable company in the world at a valuation above $8 trillion.

A dose of reality

One analyst, who gave a buy recommendation on the stock, shared one comment that shows SpaceX investors will need an extraordinary amount of patience for the stock to pay off.

Citing the company's funding risk, a Morgan Stanley analyst said, "We forecast no free cash flow-positive year before 2035 and average external capital needs of roughly $84 billion per year from 2027 to 2034. If debt markets cannot absorb this financing need, SpaceX may need to issue equity, reduce growth investment, or slow deployment."

Assuming this is a base-case scenario, this analyst sees no positive cash flow from the company for nearly a decade. In itself, that's not entirely remarkable. Amazon founder Jeff Bezos ran that company with a famously long-term mentality, and didn't generate positive free cash flow until 2003. Bringing in more than $1 billion in free cash flow annually took the company until 2007.

However, Amazon was a much different company from SpaceX shortly after its IPO. First, it went public less than three years after it was founded, while SpaceX waited 24 years. Amazon was also growing much faster at that stage, putting up triple-digit growth before the dot-com bust. SpaceX, on the other hand, reported just 15% revenue growth in its first quarter.

In other words, SpaceX is at a much different stage of its life cycle than Amazon was, even though it still has bold ambitions, including in AI, launching orbital data centers, and eventually colonizing Mars.

What it means for SpaceX investors

Unlike Amazon in its early days, SpaceX is not cheap by any conventional metric, and its valuation already makes it one of the most valuable companies in the world, leaving it with much less upside than Amazon had when it went public. Morgan Stanley's prediction also shows how much risk is involved in a SpaceX investment.

Using the conventional discounted cash flow model, there's pretty much no scenario in which SpaceX could delay free cash flow by a decade and still justify its current valuation of $1.5 trillion, and that doesn't even factor in the capital funding needs of $84 a year over the next eight years, or $672 billion total.

Making predictions nearly ten years in the future is mostly an academic exercise, and by nature, predictions become less accurate the further away they are.

For SpaceX bulls, it's worth considering that the buy case is premised on the company successfully enduring nearly a decade of deep cash losses. If SpaceX accomplishes the goals it has set for itself, like making human life interplanetary, then it should pay off, but optimistically, it's still decades away from that.

The recent sell-off seems to reflect the reality that it will take many years for the company's investments to pay off, if they ever do. Given that, the stock seems destined to continue to fall as 2035, its first year of positive free cash flow according to Morgan Stanley, is still a long way away.

Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.