Key Points
Space Exploration Technologies (NASDAQ: SPCX) was one of the most sought-after stocks on the planet last month. SpaceX launched the world’s biggest initial public offering — an operation that was largely oversubscribed — and went on to see high demand in its first days of trading. From its offer price of $135 to its peak of $225 on June 16, it rose more than 65%. And after the exercise of an overallotment option, SpaceX raised a whopping $85 billion.
The tech giants known as the “Magnificent Seven” also have experienced glory days, but over a longer period. These companies led the S&P 500‘s gains during the past three years amid the artificial intelligence (AI) boom. Each of these players has seen their shares advance in the double- or triple-digits over that time.
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So now, you may be wondering whether you should invest in SpaceX or the members of the “Magnificent Seven.” Let’s check out which is a better option.
Image source: Getty Images.
The case for SpaceX
SpaceX soared right out of the gate as investors got excited about the company’s growth businesses of rocket launches, connectivity, and AI. And some investors also liked that this is a company led by Elon Musk, known for his focus on game-changing innovations.
The company has made progress in a variety of areas in recent years. For example, it’s greatly brought down the cost of rocket launches thanks to its work on reusable rockets. And SpaceX has seen the popularity of its Starlink internet service surge, with subscribers rising from 2.3 million to 10 million over just three years. All of this helped SpaceX deliver $18 billion in revenue last year, for a 33% gain.
The company has big goals, such as the development of data centers in space, and investors know that if SpaceX reaches certain milestones, earnings and stock performance could skyrocket. All of this helped propel the stock price higher during SpaceX’s first days of trading, but in recent days, the stock has pulled back. In fact, SpaceX is trading lower than its debut price of $150, and some may consider this a buying opportunity.
The case for the “Magnificent Seven”
The “Magnificent Seven” stocks are as follows: Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), and Tesla (NASDAQ: TSLA).
These players are leaders in a wide range of tech specialties, from e-commerce to chips and software, and they are all involved to some degree in the high-growth industry of AI. These companies have delivered earnings growth over time, and their earnings prospects are generally bright.
So, “Magnificent Seven” companies are on track to deliver growth from their core businesses, and on top of this, they are well-positioned to benefit from AI over time. Nvidia is the only one of the bunch that depends more heavily on AI, with more than 90% of revenue coming from its data center business. But it’s important to note that Nvidia is broadening the use of AI across industries, which also expands its revenue opportunities.
Though Tesla continues to trade at a high valuation and Apple has seen its valuation climb over the past year, the other five tech giants trade for less than 29x forward earnings estimates and look very interesting at these levels.
GOOG PE Ratio (Forward) data by YCharts
SpaceX or the “Magnificent Seven”?
So, should you put your money into SpaceX or diversify across the “Magnificent Seven”? Even though SpaceX stock has declined in recent times, it still looks pricey considering the risk that comes along with this investment. Many of SpaceX’s goals involve the development of technology that hasn’t yet been fully proven — and to develop technology and advance its programs, SpaceX must heavily invest. Last year, capital expenditures drove the company to a net loss of $4.9 billion.
Meanwhile, an investment spread across the “Magnificent Seven” — and here I would go for the five cheapest according to valuation, as shown in the chart above — could be great for three reasons. First, these particular stocks are trading at bargain levels. Second, they are proven winners with a long track record of growth, and they are well placed to benefit from AI now and into the future. Finally, by spreading your money across several stocks, you offer your portfolio diversification.
All of this makes the “Magnificent Seven” a better buy than SpaceX right now — for safety and growth.
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Adria Cimino has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
