The Case for (and Against) Buying SpaceX Stock Right Now

Although it's only been a few months since Space Exploration Technologies (NASDAQ: SPCX) went public, the ride has already been quite messy. After its record IPO in June, SpaceX stock initially ripped higher, only to be cut in half from its peak, and now sits around its opening-day $2 trillion valuation.

This price action is the backdrop for the real question: Is this the moment to buy a piece of Elon Musk's combined rocket, satellite, and artificial intelligence (AI) machine, or is the price still asking investors to believe too much, too soon?

Image source: The Motley Fool.

The bull case: Rockets, connectivity, and AI capacity

The optimistic argument is straightforward: Investing in SpaceX does not mean you're just buying a launch company. In reality, you are buying into the idea of a vertically integrated infrastructure stack that most industrials and tech companies can only dream of building. SpaceX develops its own rockets, flies its own satellite constellation and sells connectivity through Starlink, and also rents out compute from data centers.

Following its combination with xAI earlier this year, SpaceX's data center business has shown impressive traction. Anthropic is paying $1.25 billion a month to rent capacity at SpaceX's Colossus data center. Alphabet's Google Cloud signed a compute agreement valued at $920 million a month starting next month, while a newer hosting deal is expected to add another $1.11 billion a month beginning in December.

At its current pace, SpaceX CFO Bret Johnsen says the company is on track to reach a $100 billion annual recurring revenue (ARR) run rate by year-end. Musk himself is even more bullish, saying AI revenue should eclipse the rest of the business by the end of this month.

The longer-term setup is what actually makes SpaceX feel like a generational opportunity. Starship is supposed to launch orbital data centers starting late next year and scale throughout 2028. If this works, SpaceX will have built the cheapest launch cadence available, access to an underlying connectivity network on the ground and in space, and its own chips.

The bear case: Valuation, lock-up agreements, and debt

The bear argument around SpaceX starts with its valuation. Last year's revenue was only about $18.7 billion and the company was still losing money. Wall Street is forecasting revenue to jump materially over the next two years -- to $44.8 billion this year and $108.3 billion next year. Even if SpaceX achieves these targets, the stock still trades at nearly a 20x forward price-to-sales (P/S) multiple based on 2027 expected revenue. This is not cheap for a capital-intensive business.

Share supply is the more immediate headache, though. SpaceX only floated about 4% of the company in the IPO. Since then, lockup agreements have started to expire, and more are coming. Another tranche is scheduled for Sept. 24, with up to 328.4 million shares coming available on both Oct. 9 and 24. After third-quarter earnings are published, up to 1.3 billion more shares can flood the market. While Musk himself is locked up until next June, employees and insider investors are not. The extra supply after a volatile first summer of trading is not a recipe for a clean uptrend.

Shortly after going public, SpaceX issued $25 billion of bonds with coupons ranging from 5.35% to 6.65%. Data centers, Starship factories, and orbital hardware will continue to eat cash. Considering the Federal Reserve just raised interest rates and signaled more could be on the way, SpaceX's cost of capital just got more expensive.

If the company has to issue more paper to fund the next wave of compute and launch sites, the path to profitability gets much tighter. While management can slow capital expenditures if needed, there is irony in this risk. The same rates that make growth stocks look expensive can also force SpaceX to stretch its timeline on the very build-outs that support today's frothy price tag.

Is SpaceX stock a buy?

The case for buying SpaceX stock now revolves around the rare chance to own the whole stack -- launch, connectivity, and compute -- while AI contracts continue landing. The case against investing is a rich valuation that could be plagued by a calendar full of lock-up expirations and a capital-hungry infrastructure plan that just got more expensive.

To me, both arguments have merit. I think investing in SpaceX ultimately boils down to your personal risk tolerance, conviction in Musk to execute, and a realistic timeline on which you expect to realize material gains.

Adam Spatacco has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.