Fantastic News for SpaceX Stock Investors

SpaceX’s proposed solution is to send AI satellites into orbit and have them run on readily available solar power. The company has identified a $26.5 trillion opportunity in the AI market, far higher than the combined opportunity of its two other business segments. And AI satellites could help it tap into this opportunity. But it needs Starship for that. Of course, Starship will also enable the company to remain the leader in space launches.

While this unit isn’t profitable right now, Starship is the largest and most powerful rocket ever built. If it achieves full reusability, as SpaceX hopes, it could help the company reduce launch costs even further (and significantly), leading to higher margins and operating profits in this segment.

Is SpaceX stock a buy?

SpaceX is performing well financially. In the second quarter, the company’s revenue increased 92% year over year to $7.8 billion, while its net loss was $541 million, significantly lower than the $1 billion net loss reported in the prior-year quarter. In addition, the company is making meaningful progress on various fronts. Starship has undergone two successful test flights since SpaceX went public, and the company has signed additional AI compute deals.

Yet, the stock has basically moved sideways since its IPO a little over three months ago. Why isn’t it crushing the market? There are at least two reasons. First, there is significant uncertainty with SpaceX. The company’s plans don’t just depend on its innovative abilities; there are potential legal and regulatory obstacles (among others) that could disrupt its progress.

It’s also possible that SpaceX’s addressable market will be far smaller than it thinks. Second, the market appears to have already baked SpaceX’s success into its share price. The company is trading at 200x forward earnings. That reflects the significant opportunities ahead for SpaceX, but the stock could fall off a cliff if it fails to meet expectations. So, is SpaceX stock a buy? The company does have massive upside potential, but the downside risk is huge as well.

Only investors comfortable with significant volatility should consider investing in SpaceX at current levels.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Fantastic News for SpaceX Stock Investors was originally published by The Motley Fool