Could Buying SpaceX Stock At Its IPO Set You Up for Life? (Hint: Yes.)
Key Points
Investors expect future innovations, not current profits, to justify SpaceX’s lofty valuation.
Starship and Starlink position the company for decades of scalable expansion and new revenue streams.
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All signs point to SpaceX holding its initial public offering (IPO) sometime this summer, perhaps as early as next month. And retail investors are in luck. Most IPO stocks reserve just 5% to 10% of shares for smaller retail investors.
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According to reports, however, Elon Musk wants to reserve as much as 30% of SpaceX's stock offering for smaller investors. "Those are folks that have been incredibly supportive of us and of Elon for a long time, and we want to make sure that we recognize that," commented SpaceX's chief financial officer, Bret Johnsen.
Investors may be able to gain limited exposure to this exciting space stock before its IPO, though the available options can involve added fees, restrictions, and reduced liquidity.
Whether you buy shares now or later, how much growth potential could there really be for a business seeking to value itself at $1.5 trillion to $2 trillion? It depends on what you think the future will look like. But there's one reason in particular to believe SpaceX shares can help your portfolio grow for decades to come.
Why is SpaceX worth investing in despite a lofty valuation?
Right now, many of Musk's businesses are valued mostly on future earnings potential, not present cash flows. Tesla (NASDAQ: TSLA), for example, has a $1.3 trillion valuation despite falling auto sales over the last few years. That's because investors are more excited about the company's potential for robotaxi than its historical auto manufacturing business.
A similar situation is taking place with SpaceX stock right now. Data revealed in the company's public prospectus filed this month highlighted how much SpaceX's valuation hinges on investors' belief that the best is yet to come. "The prospectus shows just how much the IPO depends on expectations for future growth and investor servility to Musk -- as opposed to the current underlying business," reports Axios. "Those expectations will be severely tested if SpaceX really wants to be valued at $1.75 trillion -- which would make it one of the world's 10 most valuable companies."
Image source: Getty Images.
But here's the thing: The best is yet to come for SpaceX. The company pioneered the use of reusable rockets and has done more to lower launch costs than any other rocket business in history. Following the IPO, SpaceX intends to use some of its fresh cash to accelerate the testing and scaling of its Starship rocket -- a massive rocket that could dramatically lower the cost of getting a payload to space.
Cheap rockets are a ticket to scaling businesses that were only dreamed of a few years ago. Starlink, for example, launched its first operational satellites into space in 2019. Today, it remains the only consumer-grade, high-speed, low-earth-orbit satellite internet network in operation, generating $15 billion to $16 billion in annual operating income.
From expanding its Starlink service to launching orbital data centers or even establishing a permanent base on the moon, SpaceX's growth opportunities are exciting and plentiful, even if they are fairly far out. So despite its high valuation, SpaceX shares remain a promising long-term investment in an otherwise diversified portfolio.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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