SpaceX and Tesla stocks aren't at all-time highs, but SpaceX-Tesla merger mania is. The potential to combine Elon Musk's two companies is impacting stock trading and Wall Street price targets.
Tesla stock was down 3.9% in premarket trading on Thursday after the company reported fine third-quarter results. Piper Sandler analyst Alexander Potter didn't think earnings drove the decline, instead he cited elevated expectations following SpaceX's quarterly report.
SpaceX stock rose 7.8% on Wednesday following blowout third-quarter results. That dragged Tesla stock up -- for good reason. SpaceX and Tesla CEO Elon Musk endorsed the idea of a merger on SpaceX's earnings conference call, while adding that both companies' boards have formed committees to look at the idea.
JPMorgan analyst Rajat Gupta raised his Tesla price target to $430 from $415 on Thursday, citing "higher SpaceX merger probability," adding that merger chatter is likely to "continue to provide downside support for [Tesla] stock."
William Blair analyst Jed Dorsheimer wrote that Tesla's AI efforts along with SpaceX merger chatter are "in full control of [Tesla] stock," beyond any near-term fundamentals, such as EV sales.
The deal feels like a fait accompli. SpaceX is seen as the acquirer. RBC analyst Tom Narayan believes a deal could be struck at $480 per Tesla share. But is it a good deal for SpaceX?
"We believe that a Space-X-Tesla combination would probably be a better deal for Tesla minorities than for those at SpaceX," wrote Oxcap analyst Stuart Pearson on Thursday. SpaceX would be ceding half their company for a "lower-return asset with uncertain - and more contested - growth potential."
Tesla has big ambitions for its AI trained robo-taxis and robot business, but nascent markets have a lot of competition, too.
The arguments for combining the two are AI synergies including shared investment in AI compute and semiconductor manufacturing, talent working on AI applications, connectivity between physical AI applications such as robo-taxis and Starlink, SpaceX's space-based broadband product, and power for data centers from Tesla's battery business.
"The central pushback is that almost every one of these benefits is already available, or achievable, through joint ventures and arm's-length commercial agreements, so a merger adds concentration and integration risk without unlocking anything new," added Pearson. "Set against SpaceX's own investment needs, the Tesla-side savings are small, and the result is a sprawling conglomerate that could trade at a discount rather than a premium."
How the combined entity would trade is something to think about, but Musk is likely going to get what Musk wants.
SpaceX stock was down 3% early Thursday after its big Wednesday. S&P 500 and Dow Jones Industrial Average futures were down 1.1% and 0.7%, amid rising tensions in the Middle East.
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