• SpaceX (NASDAQ:SPCX) and Tesla (NASDAQ:TSLA) shares fell sharply as Democratic election gains raised concerns over regulatory scrutiny and Elon Musk’s political exposure.
  • Morgan Stanley (NYSE:MS) upgraded its long-term forecasts for SpaceX, but the $300 price target predates this week’s revisions.
  • Investors are weighing near-term political risk against SpaceX’s ambitious AI-driven growth outlook.

Election Fallout Hits Musk-Linked Stocks

SpaceX and Tesla shares slumped in premarket trading Wednesday, with SpaceX down as much as 4.6% and Tesla off 4.4%, according to CNBC (NASDAQ:VSNT), as investors digested Democratic victories in the midterm elections. The declines reflect a reassessment of political and regulatory risk for companies led by Elon Musk, who has faced increasing scrutiny over his government contracts and political activities.

Democrats were projected to take both congressional chambers, with Republican losses in Texas particularly significant for Musk’s Texas-based companies. Investors fear that a Democratic Congress could launch investigations into Musk’s business dealings, impose restrictions on AI infrastructure, or slow approvals for a potential Tesla–SpaceX combination.

“The market is pricing in a higher political risk premium for anything Musk-related,” said one analyst, speaking on condition of anonymity. “It’s not about fundamentals today; it’s about perception.”

Morgan Stanley’s Bullish Case Intact

Despite the selloff, Morgan Stanley remains optimistic on SpaceX’s long-term prospects. In a note dated November 3, analyst Adam Jonas substantially increased revenue and earnings estimates for the company, while maintaining a $300 price target that implies roughly 114% upside from the $140 reference price.

The bank now projects 2027 revenue of $175 billion, up 93% from previous estimates, and 2028 revenue of $289 billion, up 84%. Operating income for 2028 is forecast at $119 billion, with adjusted earnings of $109 billion. Free-cash-flow breakeven is now expected in 2031, versus 2035 previously.

However, the $300 target appears to predate the forecast upgrades, rather than represent a newly raised target. Coverage of Morgan Stanley’s July initiation already listed a $300 target. “The headline saying Morgan Stanley raised its target to $300 is misleading,” noted one market watcher. “They raised forecasts, not necessarily the target.”

AI and Connectivity Drive SpaceX Valuation

Morgan Stanley’s bullish thesis hinges on SpaceX’s evolution into an AI and connectivity powerhouse. The company’s Q3 results showed revenue of $14.58 billion, up 161% year over year, with AI/Super Intelligence revenue of roughly $7.6 billion and connectivity revenue of $5.2 billion. Adjusted EBITDA came in at $8.8 billion.

Jonas’s note attributes $165 of the $300 target to enterprise AI, $118 to connectivity, and only $8 to external launches. “The investment case is no longer just about rockets,” the analyst wrote. “It’s about monetizing compute and data.”

SpaceX is developing multiple gigawatts of data-center capacity, including in Texas, but proposed restrictions could delay projects. “Power and permitting are the new bottlenecks,” said one industry executive. “The election adds uncertainty to those timelines.”

Tesla’s Profit Pressures Mount

Tesla, meanwhile, faces its own challenges. The company’s Q3 results showed revenue of $28.05 billion, roughly flat year over year, while operating income fell 56% to $718 million. Operating margin narrowed to 2.6% from 5.8% a year earlier, and free cash flow dropped 62% to $1.53 billion.

Tesla attributed the profit decline partly to higher AI-related research spending and stock compensation, alongside lower regulatory-credit revenue. Vehicle deliveries fell 2% to 486,532.

The company’s shares have been volatile, reflecting both operational pressures and political headwinds. “Tesla is spending heavily on autonomy and AI, but the payoff is still uncertain,” said one portfolio manager. “The election just adds another layer of risk.”

Merger Speculation Adds to Uncertainty

Speculation about a potential Tesla–SpaceX merger has further complicated the picture. According to earnings-call coverage, independent special committees are evaluating a combination, but no terms have been agreed. A merger would raise governance questions given Musk’s leadership of both companies.

“Congress could slow the process through scrutiny, but it can’t simply stop a merger,” said Kathleen Brooks, analyst at XTB (GPW:XTB). “Still, the political noise is a distraction.”

A SpaceX spokesperson declined to comment on merger speculation. Tesla did not respond to a request for comment by publication time.

Market Reaction and Outlook

The selloff in Musk-linked shares contrasted with broader market gains, as stocks and bonds rose on hopes of political gridlock and slower federal borrowing. The divergence highlights how company-specific political risk is affecting certain names.

“This is a Musk-specific repricing, not a market-wide downturn,” said one strategist. “Investors are separating the political from the fundamental.”

Near term, volatility is likely to persist as markets await clarity on congressional oversight, data-center policy, and merger developments. Longer term, Morgan Stanley’s thesis depends on rapid AI monetization. The bank estimates SpaceX trades at 17.6 times forward earnings based on its 2028 adjusted earnings forecast, slightly below its 17.7 times estimate for the S&P 500.

“The apparent cheapness relies on those ambitious forecasts being achieved,” the strategist added. “It’s a high-risk, high-reward story.”

Correction: An earlier version of this article misstated the percentage decline in SpaceX shares. It has been updated to reflect the 4.6% drop reported by CNBC.

Update: This article was updated to clarify that Morgan Stanley’s $300 price target predates its latest forecast revisions.