Prediction: SpaceX Stock Could Crash by 50% by 2027

On June 12, Elon Musk's iconic space industrial giant, Space Exploration Technologies (NASDAQ: SPCX), also known as SpaceX, went public at $135 per share -- representing an initial market cap of $1.77 trillion. Over the following days, shares continued to grow before the stock settled at a price tag of roughly $185 at the time of writing.

The excitement probably has something to do with Musk's success with previous business ventures like PayPal and Tesla. That said, good vibes and Musk's (mostly) good track record are not enough to explain SpaceX becoming the sixth-most-valuable company in the world. With this in mind, let's dig deeper into the pros and cons of SpaceX to find out why its soaring shares could rapidly fall back down to earth by the end of the year.

What is SpaceX?

On the surface, SpaceX is an extremely attractive business. According to analysts at McKinsey & Company, the global space industry could soar to $1.8 trillion by 2035. And SpaceX is able to tap into this opportunity through various angles, including rocket launches to transport payloads to space, broadband internet, and other satellite-based services.

The company has established a technological lead with its large reusable rockets. And its internet service, Starlink, already boasts over 12 million customers across 160 countries. It also plays a role in military contracting, most notably helping the Ukrainian armed forces maintain connectivity and unjammable communication systems during their war with Russia.

That said, a good company won't necessarily make a good investment if its valuation is out of whack. And right now, SpaceX trades for an otherworldly price-to-sales (P/S) ratio of 125 compared to the S&P 500's average of 3.7. Tesla's relatively high P/S of 14 looks cheap in comparison.

What is the growth story?

Usually, an elevated P/S ratio suggests the market believes a company will soon generate explosive, high-margin revenue growth that will translate to outsize profits. And while SpaceX's launch service and internet businesses are attractive, they don't seem capable of delivering enough expansion to justify such a high valuation by themselves.

SpaceX's total sales grew by 33% year over year to $18.7 billion in 2025, which is far from the triple-digit growth rate that would justify a P/S ratio of 125. Clearly, the stock's valuation now has very little to do with its established and profitable space business. Instead, SpaceX has become a highly speculative bet on generative artificial intelligence (AI).

The company believes AI is a $22.7 trillion long-term opportunity. But investors should be skeptical. For starters, SpaceX's AI division (which is mainly comprised of the recently acquired xAI subsidiary) doesn't seem particularly impressive compared to the competition.

Image source: Getty Images.

According to data from Sensor Tower, the company's flagship large language model (LLM), Grok, has a market share below 5%. This number is far behind industry leaders ChatGPT and Gemini, which boast market shares of 46.4% and 27.7%.

While the LLM market is notoriously speculative, it offers the potential for high-margin growth through licensing APIs or potentially creating an artificial "super intelligence" that would help justify SpaceX's inflated valuation. SpaceX is instead focusing on the much less glamorous AI infrastructure opportunity, which involves renting out data center capacity to other businesses.

This month, the company signed a deal with Alphabet, which will involve offering computing capacity for $920 million monthly. But while this is great in the short term, hyperscalers will ultimately seek to build out their own data center capacity instead of relying on third parties indefinitely. SpaceX will also be saddled with depreciation and other operating costs that will put pressure on long-term margins and profitability.

Shares could decline by 50% or more

While SpaceX is a good business, its valuation is detached from reality. And it's only a matter of time before the hype fades and investors start looking at the numbers. Shares could decline by 50% or more before the end of the year. And potential investors should stay far away.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, PayPal, and Tesla. The Motley Fool recommends the following options: short June 2026 $50 calls on PayPal. The Motley Fool has a disclosure policy.