Want Exposure to SpaceX Without Actually Buying the IPO? This Might Be Your Best Option
Key Points
SpaceX stock is expected to go public this week.
Google, whose parent company is Alphabet, works with SpaceX and has also invested in the company.
Alphabet, unlike SpaceX, is highly profitable and has much better financials.
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The SpaceX IPO is coming this week. Excitement has been building in recent weeks, and investors have been looking for ways to gain exposure to the stock before it even begins trading.
But there's a simple way to do so that doesn't come with much long-term risk and involves investing in one of the top companies in the world: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). Here's why investing in this tech giant may be a good move if you want to take advantage of the growth opportunities tied to SpaceX.
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SpaceX and Google are working closely together
Putting data centers in space is something that SpaceX plans to help accomplish in the future. And one of the companies it's working on in that endeavor is Google, which Alphabet owns. The two companies are reportedly in talks on deepening their relationship on such a project. Meanwhile, Google is already a large customer of SpaceX's, paying about $920 million per month for compute capacity for artificial intelligence.
Google has also invested in SpaceX, and its stake in the business is around 6%. This makes investing in Alphabet a great way for investors to indirectly gain exposure to SpaceX, not only through that stake, but also given the close working relationship the companies have together and the similar goals that they are pursuing. Plus, unlike SpaceX, Alphabet is already hugely profitable and generating tons of free cash flow; it's a much safer investment than SpaceX.
The IPO may be exciting, but it's undoubtedly risky
Buying an IPO right when it becomes available is inherently risky, as it can be difficult to gauge its direction; a lot depends on price and valuation. With SpaceX's valuation anticipated to be around $1.75 trillion, it's already going to be an expensive stock to own on day one. For a company that isn't profitable yet, that represents a massive price tag, and it could make SpaceX's stock vulnerable to a steep decline early on.
Even if you're bullish on SpaceX's long-term growth opportunities, investing in Alphabet may be a smarter move. Not only are you investing in a company with a position in SpaceX, but with similar growth opportunities and much stronger financials, it's a much safer stock to invest in. SpaceX, while popular, will involve significant risk. That, combined with a high valuation are why investors may want to avoid the IPO right out of the gate. Instead, investing in Alphabet may be a better option to consider.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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