Alphabet Invested $900 Million Into SpaceX Back in 2015 -- Here's What That Stake Is Worth Now

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) was founded in 2015 as the parent company of Google. Since then, it has been a fantastic stock. Powered by its leading digital advertising business and a fast-growing cloud computing segment, the tech leader has posted significantly above-average returns. But one move Google made in 2015, before being absorbed into Alphabet, also deserves some attention. The company invested $900 million in Space Exploration Technologies (NASDAQ: SPCX), which recently broke the record for the largest IPO in history. Here's how that investment has worked out.

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Alphabet's returns are a pittance in comparison

First, some background on SpaceX. The company pioneered reusable rockets and helped significantly decrease the cost of space travel. SpaceX now dominates the market and generates significant revenue from contracts with various U.S. federal government agencies. SpaceX's work has also enabled it to become the leader in the satellite connectivity market. The company's Starlink, a business that offers internet services via a large network of Low Earth Orbit satellites, is currently its only profitable business.

SpaceX still sees significant opportunities ahead, and that's why it is one of the world's most valuable companies, much to Alphabet's delight. The tech giant recently revealed that its stake in SpaceX was worth $94.1 billion as of the end of the second quarter. For those counting at home, that's a compound annual growth rate of 52.6% over these 11 years. That makes Alphabet's returns look rather modest in comparison.

A better way to gain exposure to SpaceX

Should investors expect similar returns from SpaceX from here on out? That's not out of the realm of possibility, going by the company's internal projections. CEO Elon Musk said the company is expecting to reach $1 trillion in revenue by 2030. During the second quarter, SpaceX posted $7.8 billion in revenue, up 92% year over year. If it can indeed reach $1 trillion within four years while keeping costs somewhat under control, SpaceX could deliver extraordinary returns through the end of the decade, let alone if we extend our horizon to 10 years. But how likely is that? In my view, not very. Musk has a reputation for ambitious timelines, but they are often delayed. Meanwhile, SpaceX is making significant investments in AI that may not pay off nearly as much as the company hopes.

There are also valuation concerns. With a market cap of $1.8 trillion, $7.8 billion in quarterly revenue, and a net loss during its latest quarter, it seems the market has already factored in some of SpaceX's success into the share price. So, the stock seems rather risky right now. Investing in Alphabet, though, is a better, safer way to get exposure to SpaceX. If the space company performs as well as it hopes, that will be great for Alphabet. Otherwise, the tech leader has outstanding prospects of its own and should deliver superior returns from here on out, regardless of what SpaceX does.

Prosper Junior Bakiny has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.