Key Points
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SpaceX’s revenue more than doubled in the third quarter, and it reported its first quarterly profit.
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Elon Musk expects revenue to reach between $500 billion and $1 trillion next year.
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SpaceX recently secured $40 billion in financing to buy Nvidia GPUs.
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Space Exploration Technologies (NASDAQ: SPCX), also known as SpaceX, got the valuation it was looking for when it went public in June. The initial public offering (IPO) was oversold, and the stock shot up at the open, reaching a market cap of $2.1 trillion. However, the market has lost its taste for the high-flying stock, which is down 17% from its first-day closing price.
The company is growing rapidly, and CEO Elon Musk has set high goals for the future. Is this a great time to buy? Let’s see where SpaceX stock could be by the end of 2027.
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What’s happening now?
SpaceX has three separate segments that also work together synergistically. The rocket-launching business is perhaps its most exciting venture, offering private space travel and working with enterprise clients such as NASA. It plays an important role in the Starlink satellite broadband business, bringing satellites into space, and Musk envisions mini solar-powered data centers for its artificial intelligence (AI) business, which was recently renamed superintelligence.
Images source: Getty Images.
The company as a whole is growing fast, and each component plays a role. Total revenue increased 161% year over year in the third quarter, and it reported its first quarterly profit. With $32 billion in trailing 12-month revenue, it’s still much smaller than the other large tech stocks that are worth more than $1 trillion, and it has that valuation because the stock is incredibly expensive, trading at 54 times trailing 12-month sales.
The space business increased 84% year over year in the third quarter, but it’s still reporting a small operating loss. Starlink sales were up 69% year over year, with a $2.4 billion operating profit, and artificial intelligence sales increased 830%, reporting a $431 billion operating profit.
What could happen over the next year?
SpaceX sees artificial intelligence as its biggest opportunity, and it already accounts for about half of total revenue. If things continue to move in that direction, which is likely, SpaceX will be more an AI company than a space company.
It recently announced that it has committed to a $40 billion lease of Nvidia graphics processing units (GPUs), the chips that power AI. It secured the funding through several financial firms and boasts that this is the largest GPU financing ever.
As of the end of the third quarter, SpaceX has 1.7 gigawatts (GW) of compute power, and management believes it could reach up to 3 GW by the end of the fourth quarter. To understand what that means, 1 GW is enough to power almost 1 million homes. Musk expects another 10 GW in 2027, and he thinks there’s a chance it gets to 20.
Based on how much compute it can sell, Musk thinks SpaceX will have $500 billion to $1 trillion in revenue in 2027. That’s quite a range, which makes it challenging to say where SpaceX will be a year from now.
How fast could SpaceX stock grow?
Another angle to consider is whether the incoming Congress will curb AI development, which could slow SpaceX down. In any case, it’s questionable whether SpaceX could grow that fast; the low end implies a 1,563% increase from today’s trailing 12-month figure.
For the purposes of this exercise, I’m going to assume it can speed up, but not by that much. I’m also going to assume that the price-to-sales ratio will slow. Wall Street expects sales to increase 270% to $180 billion in 2027, and let’s say the market is willing to pay 30 times sales, or just over half of today’s multiple, for that kind of growth. If so, the market cap would reach $5.4 trillion, or triple today’s value.
Should you buy stock in Space Exploration Technologies right now?
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Space Exploration Technologies. The Motley Fool has a disclosure policy.
