Prediction: Tesla Stock Could Go Parabolic After June 12. Here's Why.
The Wall Street Journal reports that SpaceX is set for an IPO on June 12, potentially boosting Tesla's stock due to Elon Musk's influence. While excitement may drive short-term gains for Tesla, its core business faces challenges, including increased competition and declining profit margins. Investors are cautioned against chasing momentum, as both companies' valuations are heavily reliant on optimistic narratives rather than sustainable performance.
According to The Wall Street Journal, Elon Musk's SpaceX is preparing for an initial public offering (IPO) date of June 12. Should SpaceX achieve or even surpass its target IPO valuation of $2 trillion, I think that the tailwind of that success will give a boost to shares of Musk's other major business -- Tesla (TSLA +3.28%). My logic is straightforward: Musk's proven ability to generate excitement and bullish momentum could easily spill over to his other companies.
While short-term enthusiasm may indeed lift Tesla stock, a closer look at the company reveals the SpaceX IPO to be yet another chapter in a tale of narrative-driven trading rather than a prudent reflection of sustainable business value.
Image source: The Motley Fool.
How the SpaceX IPO could amplify Tesla stock
Musk has a talent for building infectious optimism around ambitious technological visions. His new product unveilings, software updates, and grand declarations about the future have historically triggered rallies in Tesla stock. However, such gains are typically followed by harsh corrections when the company fails to deliver on the timelines it promises, or when investor expectations shift. Volatility is a defining feature of Tesla stock, and the shares often move based on sentiment rather than on its operational results.
I think it's highly likely that a public SpaceX will trade in a similar fashion. Its achievements across reusable rockets and Starlink's satellite internet, combined with lofty ambitions at the intersection of artificial intelligence (AI) and space exploration, lend themselves to a compelling story.
Success in new rocket launches or breakthroughs in Starship development may spark buying frenzies among retail and institutional investors. Conversely, the inevitable production delays, test failures, or regulatory challenges that come with attempts to make progress in the aerospace industry create the potential for sharp downturns.
Since Musk leads both SpaceX and Tesla, positive developments at SpaceX naturally bolster Tesla's image. Meanwhile, any turbulence at either company will likely put pressure on the shares of the other.
NASDAQ: TSLA
Key Data Points
Tesla's story is strong, but the core business is weakening
Tesla's operating performance over the last couple of years paints a mixed picture. The electric vehicles (EVs) that comprise the core of its business face intensifying competition overseas, which has put pressure on its prices and led to variable demand in major markets.
After years of revenue growth, its top line has trended sideways over the past three years or so, with periods of falling sales, and its profit margin, which just a few years ago was in double digits, is down to about 4%. At the same time, Tesla's energy storage business has shown encouraging momentum with growing deployments and consistent profitability -- offering a meaningful source of sales diversification.
Despite these realities, Tesla's valuation reflects investors' aggressively optimistic expectations for future breakthroughs in autonomous driving and humanoid robotics. The company's $1.5 trillion market cap and its triple-digit price-to-earnings ratio assume that it will achieve enormous levels of AI-driven success in areas that remain unproven at scale. Production timelines, the need to win regulatory approvals for advanced driver assistance systems, and the capital intensity required for all of these new initiatives represent pressure points.
TSLA PS Ratio data by YCharts.
Verdict: Chasing narrative-driven momentum is dangerous
The SpaceX IPO has the potential to generate a burst of excitement around Tesla. Musk's dual leadership, the supposed AI tailwinds, and the sheer scale of the offering are a perfect recipe for bullish sentiment. My suspicion is that volatility in both SpaceX and Tesla stock will remain high, while comparisons between the two companies will dominate their respective financial trajectories.
Chasing momentum stocks is a strategy that comes with outsize risks. Tesla's current valuation already incorporates substantial optimism. Adding IPO-fueled euphoria to the equation only increases investors' chances of buying the stock when it's trading at an emotion-driven peak rather than at a valuation that's better supported by the progress the business is making.
Both SpaceX and Tesla sit at the intersection of AI and infrastructure, and their genuine technological ambitions do have long-term potential. However, whether either can offer a sustainable investment thesis from here will hinge on execution.
Interested investors will need to be vigilant in their efforts to distinguish compelling stories from real and consistent execution and appropriate valuation profiles.
In a market captivated by grand AI themes, patience and selectivity will prove more rewarding than counting on the existence of a "greater fool." While the stars could align for Musk's various ventures over time, investors who chase immediate post-IPO momentum should remember that hype-driven rallies always come with turbulence rather than predictability.
