Here's What a $500 Investment in SpaceX Stock Could Be Worth by 2030

Love him or hate him, Elon Musk is a corporate leader worth watching. And one of the companies in his catalog, Space Exploration Technologies (NASDAQ: SPCX), recently set a new record for the biggest IPO in history, raising an eye-popping $75 billion in capital and starting its run on the market with a market cap of $1.77 trillion. The funds that the technology and industrial giant raised will go in part toward financing its aggressive expansion of its artificial intelligence (AI) computing capacity.

Shareholders will be keenly watching for evidence that SpaceX's AI expansion will lead to returns big enough to justify the company's already lofty valuation. Let's discuss the pros and cons of the stock, and consider what a $500 investment might be worth by the end of the decade.

Why I've softened my stance on SpaceX

At the time of the IPO in early June, SpaceX looked like a bad investment because of its sky-high valuation, as well as the increasing maturity of its space industrial business, which focuses on transporting payloads to space, and its connectivity unit, which offers satellite broadband service through Starlink. However, now that the dust has settled, the situation looks better.

With a price-to-sales (P/S) multiple of 68, SpaceX stock is still dramatically pricier than the S&P 500's average of 3.8. But this metric has fallen substantially from above 115 in June. Things are improving because of a combination of a flat stock price and explosive improvements to the company's operating results.

In the second quarter, SpaceX's revenue soared 92% year over year to $7.81 billion, driven by strength in the company's burgeoning AI segment, where sales jumped 213% to $2.56 billion. Despite its size, SpaceX is clearly far from mature. And AI is shaping up to become a transformational long-term growth driver if things play out as hoped.

Management is extremely optimistic. And after signing high-profile deals to lease computing power to frontier model developers like Alphabet and Anthropic, they are targeting an annualized revenue run rate (ARR) of $100 billion by December. If the company hits that target, it would go a long way toward reducing its elevated P/S ratio.

Is the momentum sustainable?

ARR represents an annualized estimate of a company's revenue based on its current monthly revenue run rate. Therefore, a $100 million ARR does not necessarily mean SpaceX will actually generate $100 million in revenue over the next year. Furthermore, the projection includes revenue from newly acquired businesses like AI coding start-up Cursor, which SpaceX purchased for $60 billion worth of stock in June.

While acquisitions can boost a company's revenue rapidly in the short term, they don't necessarily create long-term shareholder value, particularly if the purchasing company pays too high a price. There are also often difficulties with integrating acquisitions into the buyer's operations.

Investors should also remember that SpaceX acquired xAI early this year in an all-stock transaction worth $250 billion. Moreover, SpaceX's capital expenditures will probably have to exceed $100 billion annually if it wants to keep up with hyperscalers like Amazon and Microsoft in the AI infrastructure race. So SpaceX's rising ARR should be viewed in the context of the huge amount of spending going on behind the scenes.

Image source: Getty Images.

Furthermore, many aspects of the company's economic moat remain unclear. While an ambitious plan to launch a constellation of orbiting data center satellites could eventually give the company an edge over ground-based hyperscalers, it remains highly speculative. The plan could be beset by a host of feasibility challenges ranging from the impacts of radiation on AI chips to the difficulties of performing maintenance or replacing components as chip technologies advance, from the threat of space debris to the risk that government regulators will put obstacles in its way.

I am optimistic about SpaceX, but I'm not yet sold

On the whole, SpaceX looks like a much more attractive stock now than it did at the time of its IPO. That said, the company's valuation is still a little too high for comfort. And although growth is good, sky-high capital spending and additional equity dilution could undermine shareholders' long-term returns.

A $500 investment made right now looks likely to track with the S&P 500's long-running average annualized return of 10%, which would leave that stake worth about $732 in 2030. But SpaceX's performance could definitely outpace the market's if the business's growth drivers live up to management's hopes.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.