Love him or hate him, Elon Musk is one of the most successful corporate executives in recent memory. And that's part of why his latest public company, Space Exploration Technologies (SPCX -4.20%), was able to hit the market at an eye-popping valuation of $1.77 trillion, based mostly on investor expectations for its future performance. But will the stock keep rising from here, or does it need more time to cool off?
Let's dig deeper into the pros and cons of SpaceX to see if it can live up to these lofty expectations and decide if it is a good buy in October.
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The company has several key moats
Elon Musk is famously not a fan of "economic moats" -- a term popularized by Warren Buffett that refers to a company's advantages that make it difficult for rivals to compete. Instead, Musk prefers to focus on the pace of innovation, which he believes is a more sustainable way to fight off rivals. It remains to be seen which perspective will win in the long run, but SpaceX is lucky to enjoy a little bit of both.
NASDAQ: SPCX
Key Data Points
On the moat side, the company boasts substantial vertical integration. As a launch operator that also runs its own hugely profitable satellite business, SpaceX can speed up the deployment of its constellations while reducing launch costs. These advantages are magnified by the fact that the company manufactures much of its own hardware in-house.
SpaceX is also leading in its pace of innovation. Last month, the company launched its Starship rocket into orbit, an important milestone on its path to full commercial operation. Starship is the largest and most powerful rocket ever created, and despite engine issues, it deployed 26 Starlink satellites, demonstrating the economies of scale that SpaceX can unlock through the sheer size of its launch vehicles.
Is AI the next big thing for SpaceX?
SpaceX is more than just a launch and satellite company. And over the long term, it aims to leverage its space business to tackle what could potentially be an even larger opportunity in artificial intelligence (AI) infrastructure. The goal is to bring data center computing capacity to space where it can benefit from virtually limitless energy, superior cooling, and laser connectivity.
While the idea initially looked like science fiction, SpaceX seems to be seriously trying to make it work. The company has recently begun launching Google's AI Tensor Processing Units (TPUs) into space. And it is scaling up its own "space chip" business through its "gigasat" factory in Bastrop, Texas, designed to produce 1 gigawatt (GW) of space-based AI compute capacity annually when it is completed in late 2027.
Over the long term, Musk believes he can scale orbital compute manufacturing to 100 GW per year. And if all this works as expected, it could give SpaceX an incredibly deep and complex moat in the AI infrastructure business.
Is SpaceX a buy in October?
On the surface, SpaceX looks like a fantastic company. And its extremely ambitious goals are already translating to meaningful operational results, with second-quarter revenue jumping 92% year over year to $7.8 billion. The company also has a clear path to profitability, after operating losses shrank from $1.94 billion to just $143 million.
On the other hand, the stock remains wildly expensive. And with a forward price-to-earnings (P/E) multiple of 200, there is plenty of room for downside if the AI hype cycle slows down or goes into reverse.
In October, taking a small experimental position in SpaceX probably won't hurt. But it might make sense to wait for more information before considering a large position in the stock -- especially if you see the current AI boom as unsustainable and primed for a slowdown.
