Key Points
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SpaceX’s business continues to fire on all cylinders, but its valuation remains eye-watering.
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A potential merger with Tesla could be a game-changer. But will it actually create shareholder value?
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Space infrastructure and generative artificial intelligence (AI) are two of the hottest megatrends currently taking Wall Street by storm. And Space Exploration Technologies (NASDAQ: SPCX) offers exposure to both. That said, with a market cap of $2.16 trillion, investors will naturally wonder if the company can still generate enough momentum to move the needle. Let’s dig deeper into the pros and cons of SpaceX to decide what its stock might be worth by the end of 2030.
Third-quarter earnings were a slam dunk
Whenever a company goes public relatively late in its lifecycle, it makes sense to be suspicious about why. After all, no investor wants to be left holding the bag for a mature business that is done growing. However, SpaceX’s recent results have totally dispelled these fears.
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Third-quarter earnings were a blowout with revenue surging 161% year over year, driven by momentum across all its segments. But the most interesting result was in AI, which management is now calling super intelligence (SI). This business involves acquiring data center computing power and renting it out to hyperscalers to run and train AI models, and it saw sales jump more than ninefold to $7.56 billion.
There is reason to believe the momentum will continue in the coming quarters. Goldman Sachs expects hyperscalers’ capital expenditure (capex) to reach $1.4 trillion next year, suggesting continued high demand for AI-related infrastructure. SpaceX’s space infrastructure business is also doing well, with the company launching its first commercial Starship mission, which delivered 26 Starlink V3 satellites into low Earth orbit (LEO).
What could a merger with Tesla mean for investors?
But while SpaceX’s earnings are impressive, that actually isn’t the biggest news story for the company right now. SpaceX’s future may be more influenced by a potential merger with Elon Musk’s other public company, Tesla (NASDAQ: TSLA). Reuters reports that Wall Street now sees the combination as “inevitable.” And both companies have formed special committees to discuss the idea, which Musk sees as “having a lot of merit.”
Off the bat, a merger makes a lot of sense. Both entities are headed by the same CEO (Elon Musk), and merging them will help avoid conflicts of interest. From an operational perspective, it will likely improve economies of scale and unlock cost savings by eliminating redundancies. This is particularly important as both companies are seeking to integrate generative AI and chip manufacturing into their business models.
That said, the business combination could also come with challenges that make it harder to generate real value for shareholders. An alarming study by the accounting firm KPMG found that 83% of acquisitions failed to boost shareholder returns due to issues such as overpayment and poor synergies. A Tesla-and-SpaceX merger could have these issues in spades.
With a market cap of $1.5 trillion and a price-to-earnings (P/E) multiple of 352, Tesla stock is already extremely expensive. And SpaceX would likely have to pay a premium on top of that, leading to significant equity dilution, assuming this is an all-stock deal. Meanwhile, SpaceX investors will gain exposure to a stagnating EV business they may not want.
Where will SpaceX stock be by the end of 2030?
SpaceX continues to wow Wall Street with its explosive growth and successful transition to AI technology. And it remains one of the most exciting companies on the planet. That said, the next four years will also come with big challenges, as it will have to work hard to justify its price-to-sales (P/S) multiple of 68 compared to the S&P 500 average of 3.8.
With such a high valuation (and the risks involved in acquiring Tesla), it is hard to see SpaceX stock growing much from its current price even by 2030. It won’t surprise me if the stock is back around the $150 level after a few years of massive volatility. And investors should probably sit on the sidelines until there is a correction or the company’s growth catches up to its price tag.
Should you buy stock in Space Exploration Technologies right now?
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
