Did You Miss Out on the SpaceX IPO? Here Are 2 Better Stocks to Buy Instead
Key Points
SpaceX stock is currently valued largely on hype.
Amazon has a growing cloud computing business and space ambitions with Project LEO.
Alphabet is the most complete AI company and is also pursuing space-based data centers.
- 10 stocks we like better than Space Exploration Technologies ›
While many retail investors got allocations of Space Exploration Technologies (NASDAQ: SPCX) when the stock IPO'd, others were left out. However, if you missed the IPO, I wouldn't be chasing the stock, as I think there are better companies to buy pursuing similar objectives.
SpaceX, as it is better known, operates three primary businesses. The first is its reusable rocket business, but this isn't why the company closed its first day of trading with a $2.1 trillion market cap. This is a solid business, but it's more of a launching pad (pun intended) for its other businesses. SpaceX's Starlink satellite internet service is its profit center. Once again, this is a nice business, but certainly not a trillion-dollar one.
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The company's biggest opportunity is its artificial intelligence (AI) business, which it views as having a total addressable market of $26.5 trillion. Through its earlier acquisition of another Elon Musk-backed company, xAI, SpaceX acquired a large hyperscale operation and the Grok large language model (LLM). The big ambition for this business is to eventually build data centers in space, which could be powered by solar power from near-constant sunlight. However, there are technical issues to overcome, including cooling the infrastructure in the vacuum of space, the finite usefulness of chips, and protecting them from cosmic radiation, which can corrupt data.
Right now, SpaceX stock is valued mostly on the hope and dreams of a CEO with a very mixed track record of delivering on his promises, including timelines for autonomous driving and a large hyperloop system. As such, I think there are better stocks to buy.
1. Amazon
If you're looking for a hyperscaler with space ambitions, look no further than Amazon (NASDAQ: AMZN). The company is the largest cloud computing provider in the world and is seeing strong acceleration in revenue growth in this business. It also has an established custom chip business, including its Trainium AI accelerators and Graviton central processing units (CPUs), that help give it a cost advantage.
At the same time, Amazon is building a satellite internet service called Amazon Leo to compete with Starlink. While SpaceX does have an advantage with its own rocket operations, and Amazon saw a setback with the Blue Origin explosion, it's notable that no one was hurt, and none of its satellites were damaged. It's also contracted with multiple providers, and its strategy remains unchanged. Meanwhile, its recent acquisition of Globalstar will bring it important spectrum, device-to-device capabilities, and a close partnership with Apple.
I'd also throw in that Amazon is one of the world's leading robotics companies and much further along than Musk and his robot ambitions at Tesla.
2. Alphabet
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is also a much better buy than SpaceX right now. While SpaceX is trying to become a leading AI company, Alphabet is already the most complete one. Its Gemini model is a top-tier foundation model, while its Tensor Processing Units (TPUs) give it a significant advantage by reducing training and inference costs. Its ability to embed Gemini across its search and product ecosystem provides a much better monetization path.
Alphabet isn't ignoring space, either. It actually owns a large stake in SpaceX, and its Project Suncatcher is developing a constellation of solar-powered satellites powered by TPUs and free-space optical links to perform machine learning in space. It's actively working to improve TPUs' cosmic radiation tolerance and believes the cost of a space-based data center could become comparable to a land-based one in the mid-2030s.
I'd also note that Alphabet's Waymo is competing with Musk's Tesla in robotaxis and is much further ahead in deployments.
The verdict
By investing in Amazon and Alphabet, you can get access to highly profitable leading companies pursuing many of the same strategies as the money-losing SpaceX at attractive valuations. Compare that to SpaceX, which trades largely on hype at the moment.
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Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Apple. The Motley Fool has a disclosure policy.
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