Not Nvidia. Not Palantir. This AI Stock Could Have the Most Upside.

Are artificial intelligence (AI) stocks in a bubble? That's what many concerned investors are wondering today as valuations continue to skyrocket.

There are many reasons the AI boom resembles past boom-and-bust cycles. Namely, soaring valuations, high expectations for long-term growth, and a recurring defense from AI bulls that "this time is different."

There are, however, many important differences between this boom and, say, the dot-com bubble of the late 1990s. Most of the largest AI companies are already enormously profitable, with impressive revenue growth rates. And while the AI boom requires specialized hardware like graphics processing units (GPUs), much of the basic infrastructure is already in place. Conversely, during the dot-com craze, much of the internet's basic operating infrastructure was not yet built. That ultimately stretched growth timelines. The same may not be true for today's AI boom.

But there's a catch: Just because AI isn't a bubble doesn't mean that valuations will never get ahead of themselves. Indeed, we've already seen several corrections across the AI sector in recent years, though they ultimately proved short-lived. Buying many of the most popular AI stocks at their previous peaks still proved to be a winning long-term investment.

Right now, there's one undeniably expensive AI stock that still has a sizable amount of growth potential, arguably more than businesses such as Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR).

This pricey AI stock still has major upside potential

I'm not sure SpaceX (NASDAQ: SPCX) will ever be able to justify its current $2 trillion valuation. I wouldn't be surprised, however, if the company is eventually valued at $10 trillion. This apparent contradiction is easily explained. SpaceX's growth opportunities are enormous. If the company can execute on all of them, the upside would be lucrative for investors. But the risks involved are high. It is possible, or maybe even likely, that SpaceX will make hundreds of billions of dollars in capital expenditures (capex) only to fail at some of its wildest ambitions, including putting a permanent human colony on the moon and launching data centers into space.

Take a look at SpaceX's initial public offering (IPO) prospectus. You will immediately understand just how valuable SpaceX's end markets could be.

"We believe we have identified the largest actionable total addressable market in human history," SpaceX claims. The breakdown of this estimate is telling.

We estimate that our quantifiable TAM is $28.5 trillion, consisting of $370 billion in Space from space-enabled solutions; $1.6 trillion in Connectivity across $870 billion in Starlink Broadband and $740 billion in Starlink Mobile as well as additional opportunities in enterprise and government; $26.5 trillion in AI across $2.4 trillion in AI infrastructure, $760 billion in consumer subscriptions, $600 billion in digital advertising, and $22.7 trillion in enterprise applications.

Image source: Getty Images.

This is my main concern with SpaceX stock at its current $2 trillion valuation. The entire Starlink and rocket launch opportunity totals less than $2 trillion. And that's assuming SpaceX takes the entire opportunity set, which almost certainly won't be the case. Justifying the current market cap, therefore, requires executing on its AI vision. The potential of that vision, according to SpaceX, is an impressive $26.5 trillion.

If SpaceX can execute on its AI growth runway, there would arguably be more upside for the company's stock price than top-tier AI companies like Nvidia. That's because this growth runway would include manufacturing its own GPUs in-house, operating data centers in space with a structural operating cost advantage over competitors, capturing a large share of enterprise AI spending, scaling vast terrestrial infrastructure like its Colossus data centers, and much more.

Whether SpaceX will succeed is another question entirely. "Only the most optimistic Moonshot scenario, which requires a rapidly reusable Starship and commercially competitive orbital data centers, approaches the IPO price," concludes a report from Morningstar. "The IPO price implies the Moonshot scenario is highly likely, but we think the outlook is very uncertain."

I'm sticking to the sidelines for now given the execution risks. But from a raw upside-potential perspective, SpaceX may be the frontrunner among AI stocks.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.