SpaceX and Nvidia Just Deepened Their Compute Alliance. 1 Stock Offers Far Greater Upside Before 2028.

Space Exploration Technologies (NASDAQ: SPCX) and Nvidia (NASDAQ: NVDA) may not seem like related companies, but they are. SpaceX also owns xAI, which makes the Grok AI model. It needs a lot of computing power to run the operation, and it's turned to none other than Nvidia to supply it. SpaceX Chief Executive Officer Elon Musk also made some bold claims regarding Nvidia's hardware, and they further cement Nvidia's place at the top of the compute leaderboard.

But of these two, which makes for the better buy? Let's take a look at where they're heading and determine which stock will provide better returns during the next year and a half.

Image source: Getty Images.

SpaceX will run exclusively on Nvidia hardware

During SpaceX's second-quarter earnings call, Musk had this to say about SpaceX's relationship with Nvidia:

We've decided to build exclusively on NVIDIA because we think the Vera Rubin architecture is the best architecture. We think it's the best AI computer, and we greatly value our close cooperation and partnership on many levels with NVIDIA. So, we're exclusive to NVIDIA.

That's a pretty definitive statement. With xAI being a fairly large competitor in this segment, it's also a big deal.

Regardless of how investors feel about SpaceX and xAI, a statement of this magnitude about Nvidia's hardware versus the competition is certainly a bullish outlook. But does it make Nvidia a better buy than SpaceX?

SpaceX has years of growth baked in

SpaceX and Nvidia may be two of the largest companies in the world, but the financial picture behind these two is quite different. SpaceX isn't a mature business and is working to find its way toward consistent profitability. Meanwhile, Nvidia is fully optimized for profits and riding the biggest demand wave it will likely ever experience.

Despite their size, both companies are growing at a rapid rate. During Q2, SpaceX's revenue rose 92% year over year to $7.8 billion. Its AI division showcased particular strength, rising 213% year over year. However, it isn't profitable and had a loss of about $143 million from operations.

Nvidia posted an even stronger quarter; revenue was up 106% year over year to $96.2 billion. It converted $63.7 billion of that into operating income, showcasing its impressive profitability.

Both are doing well, but Nvidia is doing better. However, there is an obvious mismatch that investors must be aware of in terms of upside.

Nvidia's revenue stream is more than 12 times larger than SpaceX's. With Nvidia being far more profitable than SpaceX, logic would dictate that Nvidia should be worth at least 10 times more than SpaceX, but that's far from the case. Nvidia is valued about $5.5 trillion, while SpaceX is at $2 trillion.

This indicates that either SpaceX is overvalued or Nvidia is undervalued. I think there is truth in both of those analyses, as Nvidia is valued at a pretty cheap level for its performance, while SpaceX has a lot of optimism priced in.

This is reflected in each company's forward-looking valuation metrics. I'll use 2027's estimates because that will indicate where each company is heading by 2028.

NVDA PE Ratio (Forward 1y) data by YCharts

With Nvidia trading at 14.5 times forward earnings, it looks very cheap. (Alphabet is about 22 times forward earnings while Amazon is about 24.) Meanwhile, analysts estimate SpaceX will generate $108 billion in revenue next year, which prices the stock at about 18.5 times sales versus Nvidia's 8.1 times next year's sales. That means you can buy Nvidia's stock at a cheaper earnings valuation versus SpaceX's sales price tag. That's a major difference, and further underscores why Nvidia is the better investment.

While SpaceX may have some exciting developments coming over the next few years, Nvidia's time to shine is now. As a result, I think it's the better option of the two.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.