Key Points
Few stocks have captured investors’ imaginations in the way Space Exploration Technologies (NASDAQ: SPCX) has. The stock was on a roller-coaster ride after its market debut back in June, but it has settled into a more stable trading range. That makes now a potentially good time to add the growth stock.
Let’s look at five reasons SpaceX stock could be a long-term buy.
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1. A bet on the future
No company is as big a bet on the future as SpaceX. If you want to invest in a stock that has the potential to disrupt multiple industries, SpaceX is a top choice.
The company is already looking to upend the artificial intelligence (AI) data center market by putting data centers in space. This would solve two large current bottlenecks in the industry. The first is power, as data centers in space would have a near-endless source of solar power. The second is land and permitting issues that are starting to bog down the industry, which wouldn’t be a concern in space.
However, this is really just the tip of the iceberg. The company is looking to disrupt various industries, including the wireless sector, cargo transport (with earth-to-earth transport), and mining (by drilling asteroids for their important metals and minerals). The potential is really almost limitless.
2. A steepening technology curve
Although it is easy to dismiss SpaceX’s ambitions given the technological hurdles it faces, the fact is the technology curve is steepening. This means major technological advancements are happening at a much quicker pace than in the past. If this continues, what once seemed like pie-in-the-sky goals will suddenly be reached much quicker than expected.
Given that SpaceX and Elon Musk’s other company, Tesla, are at the forefront of many futuristic technologies, that puts it in a very strong position.
3. A potential big cost advantage
Musk likes to throw out extraordinary total addressable market and future revenue figures, and his track record with prediction timelines isn’t great. Still, investors shouldn’t ignore his comments, as the company has developed one huge potential advantage that can’t be ignored. That’s its reusable rockets.
If SpaceX can successfully transfer this technology to its larger Starship program and recover both its Super Heavy booster and the Starship upper stage, that would allow it to quickly relaunch these ships at a much lower marginal cost per launch, giving it a huge future cost edge that will be difficult for competitors to overcome. The company still needs to prove it can do this with Starship, but it’s getting closer.
Image source: The Motley Fool.
4. Vertical integration
SpaceX wants to move at its own pace, and the less it has to rely on other companies, the better. That’s why it’s building its own huge chip manufacturing plant in conjunction with Tesla and Intel. It’s also one of the reasons it will likely eventually merge with Tesla to get its robotics and solar technology and place all of Musk’s bets under one roof.
Meanwhile, this vertical integration is another big edge for the company. It is not just a rocket-launching company, but that ability sets the stage for it eventually putting its AI data centers in space. It allows it to more quickly launch its low-orbit satellites, giving its Starlink satellite internet service an advantage.
SpaceX will likely never have everything under one roof, and it has consolidated on Nvidia chips, deciding to rely on its expertise in that area. However, there certainly looks like there could be a future when chip manufacturing, solar, robots, rockets, satellite internet, and AI data centers are all under one umbrella that provides great vertical integration synergies.
5. A stock unlikely to trade on valuation
Although SpaceX’s stock price looks disconnected from traditional valuation metrics, that is actually a long-term competitive advantage. Given investors’ faith in Musk and his vision of the future, the company doesn’t have to worry about hitting near-term earnings metrics, and instead it can focus on longer-horizon bets. That puts it in a good position to be successful in the long term.
Should you buy stock in Space Exploration Technologies right now?
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
