For now, the stock market believes a Democratic midterm sweep means slower AI growth. And, as a result, AI-exposed plays have been hammered.
The Nasdaq Composite fell 5.5%, wiping out some $2.5 trillion in market value, the worst one-day value destruction in history. (Of course, there have been larger percentage declines: On March 16, 2020, the Nasdaq fell 12% on fears tied to the pandemic.)
Now, investors are looking for a bottom, using all manner of technical and valuation tools. The problem for SpaceX and Tesla holders is that most of those tools don't help much with Elon Musk's rocket and car companies.
SpaceX stock dropped 9% on Thursday, leaving it down 22% since Oct. 21 -- the day after the company's better-than-expected third-quarter earnings that sent shares up almost 8%.
SpaceX is so new, however, and estimates are changing so rapidly, that it's hard to get a feel for how shares will trade.
Shortly after SpaceX went public in June, Wall Street expected 2027 earnings per share of 15 cents. SpaceX's $135 IPO price was 900 times that number. Now, 2027 estimates are $4.35 -- and the stock trades at 28 times that number, a discount to Apple stock.
Is that a good level to buy? There's no way to know. History doesn't give valuation ranges or trading patterns yet.
Wall Street isn't any help either. The average analyst price target is $256, up more than 100% from recent levels. Price targets, however, tend to follow stock prices, not the other way around. Investors can expect some price target trimming after the selloff.
The average analyst price target for Tesla stock hasn't been much help. Currently, it's $407.
And Tesla's valuation ranges aren't particularly useful, either. Shares currently trade for about 170 times estimated 2027 earnings. The earnings estimates frequently change. Tesla is expected to report 2027 earnings per share of about $2. In 2022, that estimate was $8.
Technical factors have been more helpful with Tesla. Technical analysts don't concern themselves much with valuation, using market history and trading patterns to gauge investor sentiment.
Tesla isn't oversold yet. Oversold essentially means all the bad news is in shares after a period of rapid, consistent declines.
SpaceX isn't oversold yet either. That means there could be some more down days before it hits bottom.
The Nasdaq Composite, though, is oversold. That's one data point to consider. The index is in correction territory, down more than 10% from recent highs. It can keep going down, but a lot of bad news is reflected in it already.
Consider memory chip maker Kioxia. Shares are down almost 80% from their June 52-week high. They trade for less than 2 times estimated 2027 earnings.
As for Friday, things were starting off better than Thursday.
In premarket trading, Tesla was up 1.3% at $348.07 and SpaceX was up 4.2% at $128.76. S&P 500 futures were up 0.3%, and Dow Jones Industrial Average futures were down 1%.
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