Morgan Stanley thinks the sell-off in SpaceX stock has gone too far. The bank's analyst, Adam Jonas, argues that investors are essentially pricing the company's AI business at zero — even though that AI business is a big part of why he's bullish.

Jonas reiterated his buy-equivalent rating on SpaceX (SPCX) with a $300 price target, more than half of which is tied to AI operations like Grok and Cursor. According to a Bloomberg report, Jonas noted that many investors expect the stock to fall to around $100 once insider lockups expire next month. At that level, he says, the market would be implying "zero or even negative value" for the AI segment.

"We believe the current disconnect between increasingly bearish investor sentiment and largely unchanged fundamentals creates an attractive entry point in SpaceX shares," Jonas wrote.

The average analyst price target for SpaceX is $278, implying the stock could more than double over the next year and push the company's valuation past $3.5 trillion, per Bloomberg.

What This Means for Leveraged SpaceX ETFs

Morgan Stanley's call puts the spotlight back on single-stock leveraged ETFs tied to SpaceX. Funds like the Leverage Shares 2X Long SpaceX Daily ETF (SPCH), GraniteShares 2x Long SpaceX Daily ETF (SPCG), and T-REX 2X Long SpaceX Daily Target ETF (SPAX) were launched to capitalize on post-IPO enthusiasm. They aim to deliver twice the daily return of SpaceX shares, making them highly sensitive to sentiment shifts.

If Morgan Stanley is right and the market starts giving more credit to SpaceX's AI business, these ETFs could be big winners. A sustained rebound in the stock would translate into amplified daily gains. But if investors continue to view AI as a cash-intensive business with uncertain economics, bullish ETFs could stay under pressure even if Starlink and the launch business keep humming.

The Bearish Side

The same uncertainty has created opportunities for those betting against the stock. Inverse ETFs like the Leverage Shares 2X Short SPCX Daily ETF (SSPC) and GraniteShares 2x Short SpaceX Daily ETF (SNK) are designed to profit when SpaceX declines. If the stock drifts toward the $100 level that many expect ahead of the lockup expiration, these bearish funds could keep outperforming.

The divergence between bullish and bearish ETFs highlights how Morgan Stanley's thesis is becoming a key catalyst for both sides of the trade.

Volatility: The Real Winner

Ironically, the recent turbulence might be good for ETF issuers regardless of where the stock ends up. Single-stock leveraged ETFs are primarily short-term trading tools. Their appeal depends less on whether a stock rises or falls and more on how much it moves each day.

SpaceX has already shown the kind of volatility traders love: it soared nearly 50% in its first three trading sessions, then gave back most of those gains over the following month. Such swings typically drive higher trading volumes, tighter spreads, and greater use of both leveraged long and inverse products. That pattern has played out before with leveraged ETFs tied to Tesla, Nvidia, and MicroStrategy.

AI Will Decide the Next Phase

For now, Morgan Stanley believes the market is undervaluing SpaceX's AI business. But most investors the bank spoke with continue to heavily discount the AI segment because of its massive capital requirements and uncertain path to profitability.

As that debate unfolds, ETFs like SPCX, SPCG, and others will remain among the most closely watched single-stock funds. They offer traders leveraged ways to bet on either Morgan Stanley's bullish outlook or the skepticism that SpaceX's AI ambitions won't justify the premium valuations many expected after the IPO.