Morgan Stanley declares that physical AI and space will become the “new electricity” of the economy! Increases holdings of SpaceX (SPCX.US), target price $300

According to Investing.com, Morgan Stanley released a research report on Physical AI, Space, and SpaceX (SPCX.US), asserting that robotics and the space industry will reshape the global economic landscape, with an impact comparable to that of electricity in the modern economy. The bank assigned SpaceX an Overweight rating and set a target price of $300, indicating significant upside from the current price. The report notes that the market's current pricing only reflects the value of Starlink and aerospace operations; the optionality of enterprise AI and orbital computing is hardly priced in. However, the bank also warns that the industry faces multiple uncertainties, including technological iteration, geopolitical risks, and commercialization falling short of expectations. Investors should view the long-term industrial opportunities dialectically.

The bank believes that robotics and the space industry are much more than just another category of emerging technology. The two are deeply interconnected economically, possess major military value, and may also bring disruptive social impacts. Discussing the economy without considering AI and the space sector would be like interpreting the modern economy without referencing electricity. This industrial transformation may take decades to fully unfold, but investors can begin positioning now to prepare their asset allocation for the next frontier era.

On the eve of AI advancing from the digital world into the physical world, the bank has outlined ten key principles for investors’ reference:

1. Any area that can be automated is highly likely to eventually be automated. Machines without AI will become relics of a bygone era, much like steampunk machines of the Victorian age. All economically valuable and practically productive machines should be capable of collecting data and relying on AI-driven inference and computation, thus enabling large-scale clusters of physical intelligence.

2. The US and China will most likely need to cooperate. Headlines will continue to be filled with geopolitical flux, but the bank believes it's very difficult to entirely separate Chinese products and supply chains from the US market. In the coming years, we may see a scenario where Chinese-brand cars are produced in US factories, and American-assembled robots use Chinese-made gears, motors, magnets, sensors, and batteries on a large scale.

3. China is a front-runner in the physical AI sector. The US leads with advanced AI models, but the core of the robotics track is manufacturing. Various robots (detection devices) collect data, which is fed back to factories, driving rapid iteration and technological upgrades in a “robotic Darwinian evolution.” In five years, China’s lead in AI robotics may widen even further.

4. The dual-use nature of physical AI for military and civilian purposes is highly significant. There is substantial overlap between consumer, industrial AI robots, and the national defense sector. For more information, the bank recommends reports by Morgan Stanley’s US Aerospace & Defense analysts Kristin Lvag and Justin Long on autonomous weapon systems—these analysts will have a particularly busy summer.

5. The US must rebuild domestic manufacturing capabilities. To stay competitive in physical AI, the US needs to massively rebuild its manufacturing base. There is a paradox here: China's ambition in physical AI could become the chief driving force for a US manufacturing renaissance since World War II, potentially creating millions of domestic jobs in the process.

6. The supply chain for US critical minerals needs restructuring. As billions of robots are deployed and millions of tons of payloads are launched into space, demand for critical minerals will increase by orders of magnitude. In future, ordinary investors will become much more familiar with the periodic table of elements.

7. A reassessment of skilled trades and vocational education systems is necessary. Society will need more electricians, plumbers, welders, construction workers, HVAC technicians, as well as astrophysicists, geologists, metallurgists, and manufacturing specialists. Rebuilding US manufacturing requires a vast workforce with hands-on skills. The bank believes that the bottleneck posed by workforce education is severely underestimated by the market.

8. AI faces a public relations challenge: When will the physical AI version of the “5-dollar-a-day” wage arrive? Currently, anti-AI and anti-data center movements frequently hit the headlines. In the early days of the auto industry, there were many protests over environmental, safety, and job security issues. It wasn’t until Henry Ford introduced the 5-dollar-a-day wage in 1914, creating millions of well-paid jobs, that such tensions eased. The physical AI industry will also need a similarly iconic event.

9. Focus on cross-industry collaboration. During the Second Industrial Revolution (late 19th–early 20th century), industry giants chose to cooperate: steel (Carnegie), automobiles (Ford), oil (Rockefeller), electricity (Edison), tires (Firestone). Together, they built the key infrastructure our bank still depends on. Next-generation embodied AI will also require complex industrial collaboration, driven by competition, caution, interdependence, and profit-seeking opportunities.

10. Space plays a key role in the intelligent economy. The market underestimates the value of space infrastructure in converting energy into intelligent computing power on a large scale. Space offers free energy, natural cooling, and vast room—there’s absolutely no NIMBYism to contend with. If SpaceX succeeds in Starship reusability (expected around the 15th flight), the cost of using orbital space could drop by another order of magnitude.

How should investors view SpaceX stock?

From a macro development perspective, the bank predicts that over the next 10-15 years, as the US seeks to catch up with geopolitical rivals and rebuild scientific research and commercial spaceflight capabilities, the American space economy could create hundreds of thousands of high-tech jobs; the physical AI and robotics industries could create millions more.

Currently, the fundamentals of space, satellite communications, and enterprise AI are robust. With Q2 financial reports releasing more optimistic signals and share unlocks having less of a drag on the stock price than previously feared, investors should reassess the investment value of SpaceX.

At present, the stock price sits just below $150, and the price-to-sales ratio for the enterprise AI segment is in the single digits, with almost no optionality for orbital AI priced in.

Sensitivity analysis shows that each additional 1GW of rated computing power (assuming $50/watt, 70% incremental profit margin, capitalized at 10x EBITDA) can add $27 to the share price—roughly 20% of the current price. The bank forecasts that by the end of FY2027, computing power could reach 4.9GW, while the company’s own target is close to 10GW.

SpaceX’s valuation is a sum-of-the-parts: space segment, communications segment, AI segment (breaking out X&Grok and enterprise AI). The $300 target is made up of: space $8, communications $118, X&Grok $8, enterprise AI $165.

The forecast period runs through 2040, with the valuation base date on June 30, 2027; weighted average cost of capital is 11.1%, equity cost of capital 11.9%. To account for execution risk, enterprise AI is given a 50% valuation discount. Long-term growth rates: space 4.0%, communications 4.5%, X&Grok 3.0%, enterprise AI 5.0%. The corresponding EV/EBIT/growth ratio is 0.46.

Risks loom as much as opportunities. Upside depends heavily on Starship’s reusability progress, Starlink’s user growth, and enterprise AI commercialization; if rocket iteration slows, computing power capex overshoots, or project buildout is delayed, the company will face extreme financing pressure, with attendant equity dilution. Regulatory delays and geopolitics could also disrupt execution timelines.

Both physical AI and space computing are long-cycle industries with value realization taking decades; near-term earnings are hard to deliver. For investors, SpaceX represents a growth option on the future, not a company that can be valued by traditional technology frameworks. Full consideration of technology failure and commercialization shortfalls is essential.