Is SpaceX Stock Too Expensive?

Over the past four months following its June IPO, the stock price of Space Exploration Technologies (SPCX) has remained relatively stable, closing at $145 on October 22, only slightly below its opening price of $150. Despite its overvalued label since before going public, SpaceX has yet to experience a significant drop in share price.

With a market cap of $2 trillion, SpaceX ranks among the ten largest publicly traded companies, but its revenue is the lowest among its peers. The company only managed to post its first profit as a public entity in Q3, with net income amounting to $4.4 billion. SpaceX's valuation is notably high, trading at 61 times trailing sales, which is significantly higher than Nvidia's 17 times trailing sales.

While SpaceX's rapid growth and strong financial performance have contributed to its current valuation, it remains expensive. The company's valuation dropped to nearly 100 times trailing sales before the earnings report on October 20, indicating a premium paid by investors. However, this elevated valuation leaves little room for error, as the company needs substantial quarterly sales growth to justify the high price.

AI now constitutes over half of SpaceX's revenue, and the company has been heavily investing in AI infrastructure, with capital expenditures in the AI segment reaching $16.4 billion in Q3. Given that AI accounts for a significant portion of its revenue, a downturn in AI spending or a bear market could pose a significant challenge for SpaceX's stock price.

In light of these factors, the author suggests a cautious approach towards investing in SpaceX stock. While the company shows promise with its rapid growth and impressive financial results, the high valuation and dependence on AI make it a volatile investment. The author advises starting small if considering investing in SpaceX and emphasizes the importance of carefully considering the risks involved.