Despite pensiveness in the major equity indices as investors digested concerns about the rising 10-year Treasury Yield, space economy participant Intuitive Machines (NASDAQ:LUNR) seemingly threw caution to the wind. During the late hours of the midweek session, LUNR stock skyrocketed well into triple-digit return territory. While chatter on social media platforms indicate that Intuitive may be the next big speculation trade, prospective traders should be aware of the steep risks.
Last week, Intuitive Machines made its public market debut through a business combination with special purpose acquisition company (SPAC) Inflection Point Acquisition. To quickly recap, SPACs offer no underlying operations. Instead, their main purpose – upon initiating an initial public offering (IPO) – centers on finding a viable private enterprise with which to merge. Subsequently, SPACs provide a backdoor mechanism for private firms to access public capital.
While SPACs carry a not-so-great reputation for eventually leaving retail investors high and dry, LUNR stock aligns with compelling fundamentals. Specializing in lunar access and data service solutions, Intuitive stands poised to help undergird the U.S. government’s renewed interest in lunar exploration and research. From there, scientists hope to catalyze a mission to Mars.
None of the above represents breaking news and thus presents little value in explaining Wednesday’s skyrocketing of LUNR stock. At time of writing, shares trade hands at a hair above $90, translating to over 140% upside for the day. In contrast, the benchmark S&P 500 index is up only 0.11%.
Not surprisingly, LUNR stock already exceeded Benchmark’s Josh Sullivan’s buy rating price target of $14. At this juncture, Intuitive faces an 87% downside risk relative to a reasonably deduced estimate.
Social Media Chatter Bolsters LUNR Stock
Naturally, social media took up the cause of LUNR stock, especially with the hashtag “#nextHKD.” This refers to the ticker symbol of AMTD Digital (NYSE:HKD). At one point, extreme speculation saw HKD shares soar to four-digit-price territory, an astounding performance. Therefore, the allure of quick and massively robust profits may be bolstering Intuitive Machines.
On a more rational note, Intuitive represents a relatively fresh addition to the burgeoning space economy. According to analysts at Bank of America, the space sector could command a valuation of $1.4 trillion by 2030. Plus, with Intuitive securing partnerships to undergird future NASA missions, it has its foot in the door.
Finally, after a moribund IPO cycle in 2022, risk-on sentiment appears to be making a comeback. Specifically, with inflation data steadily slowing since its peak last year, many investors reasoned that the Federal Reserve would cool its policy of aggressive interest rate hikes. Such a framework theoretically benefits LUNR stock since the underlying enterprise is not yet profitable.
Dangers That Traders Cannot Ignore
Although LUNR stock appears enticing at the moment, prospective traders must not ignore critical risk factors. Arguably the most pertinent consideration is that speculation can always (and typically does) fail. For instance, HKD is down 99.5% from its all-time closing high. Even with a substantial pop this year, it’s down nearly 18% in 2023.
Another factor to consider is that HKD may have jumped based on strange anomalies associated with Asia-based IPOs. As The Street pointed out, Addentax Group (NASDAQ:ATXG) jumped over 13,000% on its public debut before eventually crumbling. Starbox Group (NASDAQ:STBX) saw its shares pop 1,050% on its IPO day before imploding. Finally, Magic Empire (NASDAQ:MEGL) soared 6,000% before again repeating the rags-to-riches-to-rags tale.
For the record, Intuitive Machines is headquartered in Houston, Texas.
Finally, the Fed can always raise the benchmark interest rate to spark its top target: control inflation. Indeed, with some policymakers calling for exactly that, the implications don’t bode well for LUNR stock.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.