Alphabet's (GOOG -0.12%) (GOOGL -0.13%) long-running bet on Space Exploration Technologies (SPCX -0.91%) has quietly become one of the most consequential corporate investments in modern history. What began as a shared interest in satellite connectivity has now become a windfall that dominates Alphabet's financial profile. The analysis below details the power of deploying patient capital and the distortions that unrealized gains can introduce into reported profits.
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The origins of Alphabet's investment in SpaceX
In 2015, Google invested $900 million into SpaceX. At the time, the rocket company was valued at roughly $12 billion, so the investment secured Google an ownership stake of approximately 7.5%. The capital was used to support SpaceX's ambitions in reusable launch cadences and its nascent Starlink constellation. These areas aligned with Google's own interest in global internet access.
Over the last decade, Google's position was diluted through subsequent funding rounds. However, the company retained a meaningful stake in SpaceX. According to recent filings, Google's early check has now grown more than 100x in value, illustrating how a single investment can transform a balance sheet years later.
Breaking down SpaceX's landmark IPO
SpaceX completed an initial public offering (IPO) in June. According to its S-1 filing, SpaceX offered 555.6 million shares at a price of $135 each -- planning to raise $75 billion at a $1.8 trillion valuation.
In reality, SpaceX stock opened well above the offering price and closed its first day of trading near $161. This propelled the company's market capitalization past $2 trillion, instantly making it one of the most valuable companies in the world. On the last day of the second quarter (June 30), SpaceX shares were at $170.86.
NASDAQ: SPCX
Key Data Points
How to assess Alphabet's Q2 earnings
For the quarter ended June 30, Alphabet reported net income of $112.2 billion on revenue of $119.8 billion. At first glance, this looks almost unbelievable. But a quick look at Alphabet's income statement reveals that the company's bottom-line expansion was almost entirely driven by a line item called other income, which totaled $98 billion.
Smart investors understand that companies often bury important notes and disclosures deep in their filings. According to Alphabet's latest 10Q, "other income" captures net gains on equity securities. Alphabet revealed that the surge from other income was "primarily related to unrealized gains in our equity securities portfolio from SpaceX and a private company." According to Alphabet's quarter-end 13F filing, the company's SpaceX position was worth $94.1 billion.
If I subtract SpaceX's equity gains, Alphabet's reported net income would move closer to $18 billion. This would actually have resulted in a 35% year-over-year decline in earnings per share (EPS). This distinction is important because unrealized gains are non-cash and vulnerable to daily stock price fluctuations. A subsequent decline in SpaceX stock -- which has since happened since the quarter ended -- essentially reverses the same line item that drove most of Alphabet's profitability in the first place.
Against this backdrop, investors should treat reported profits with an extra level of scrutiny, especially if meaningful equity positions are marked to market value. For Alphabet specifically, the most relevant metrics remain operating income, free cash flow, and the trajectory of its advertising and cloud computing segments.
While the SpaceX stake is a genuine economic asset, its contribution to quarterly financial results is inherently episodic and largely outside of the control of Alphabet's management. Smart investors should focus on the durable, cash-generating segments of Alphabet's ecosystem rather than the valuation swings of an investment portfolio. In the long run, this approach provides a clearer view of Alphabet's underlying health and earnings power.
