SpaceX or Tesla: What Will Be the Better Buy on June 12?

The SpaceX IPO is coming, and the new aerospace stock could begin trading as early as June 12. For many investors, it's a highly anticipated opportunity to invest in one of the most exciting companies in the world, led by Elon Musk. But it isn't going to come cheap, with its valuation likely going to be at least $1.5 trillion.

That puts it in line with another one of Musk's companies: Tesla (NASDAQ: TSLA), which has a comparable market cap. Both companies are chasing some lofty long-term goals, and both are fairly expensive. On June 12, which stock will be the better buy: SpaceX or Tesla?

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The case for SpaceX

SpaceX stock, when it becomes available later this month, is going to be one of the hottest new stocks to buy in years, and demand could be amazing right out of the gate. Many investors may be anticipating a surge in value when it begins trading; thus, many people have been looking for ways to gain exposure to SpaceX even before its IPO, to take advantage of that early rally.

It's not a guarantee that will happen, and IPOs can be incredibly volatile in their early days, but it's likely one of the reasons investors are eager to gain exposure as quickly as they can.

The business is broader than Tesla's, which centers heavily around electric vehicles (EVs). SpaceX generates revenue from rocket launches, providing high-speed internet access through its Starlink operations, and artificial intelligence (AI) solutions and infrastructure. There are some compelling growth opportunities around SpaceX that make it an intriguing long-term play. While its valuation may be high, so too is the potential growth; SpaceX estimates that the total addressable market it can tap into is an incredible $28.5 trillion, referring to it as the largest "in human history."

The case for Tesla

While Tesla might not seem as exciting a growth stock once SpaceX becomes available, its financials are much stronger, making it a more investable business today. Last year, the company generated $94.8 billion in revenue and reported earnings of $3.8 billion. It also accumulated free cash flow of about $6.2 billion. Meanwhile, SpaceX is burning through cash and incurring losses, and that may only intensify as it scales its operations and invests heavily in not only space but also AI and Starlink.

It also has diversified its business, with Tesla now generating billions in revenue from energy generation and services, in addition to just automotive sales. While EV remains its bread and butter, the company has become broader. And it's also pursuing long-term growth opportunities of its own, such as developing humanoid robots that it eventually plans to sell to consumers.

What could make Tesla a more attractive buy on June 12 is that amid the excitement in SpaceX stock, shares of the EV company may decline if people end up selling Tesla stock to buy SpaceX instead. It's been declining in value this year, and there may be more of a fall in value leading up to the SpaceX IPO.

Which stock is likely to be the better buy?

Both of these stocks look highly expensive, but if I were buying one of them, it would be Tesla, simply because it already has some strong financials, and its business is in much stronger shape, making it a safer option.

SpaceX may need to continually raise money to fund its ambitious growth targets. Plus, SpaceX stock could be volatile out of the gate. Although investors may be hopeful of an early rally, there's also a strong possibility that it could end up crashing under the weight of its massive valuation. Tesla would, by default, become the safer and better overall stock to buy.

David Jagielski, CPA 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.