Key Points
When SpaceX (NASDAQ: SPCX) was preparing for its IPO, Morningstar analysts warned investors that the best buying opportunity may not occur immediately.
“We value SpaceX at $63 per share, a 53% discount to the upcoming IPO price,” the firm stressed. “Our valuation is the result of mathematics more than skepticism, reflecting a wide range of possible outcomes for the company’s financial future.”
Ultimately, Morningstar suggested that investors pass on buying into the IPO.
“We think the company has been significantly overvalued and investors will have opportunities to buy the stock at more attractive levels after the IPO,” the firm concluded.
While SpaceX stock hasn’t quite fallen to its initial IPO price of $135 per share, a steep correction has given investors an opportunity to buy in at a hefty discount to the company’s post-IPO highs. Investing now could be a wise decision long term for one key reason.
Here’s why SpaceX stock is attractive after the correction
If you’re looking to bet on AI, few stocks are as uniquely positioned as SpaceX. Many believe the company to be a rocket maker. And it is. The company’s Falcon Heavy rocket has successfully launched more than 600 times, bringing an unprecedented number of payloads to space quickly and relatively cheaply.
But rockets are simply a means to an end for SpaceX. The company, after all, used its rockets to launch its Starlink internet service — a segment that’;s posting positive gross margins and impressive revenue growth rates.
The most lucrative use of SpaceX’s rockets long term, however, will be for launching data centers into space — so-called orbital data centers.
Experts are split on whether orbital data centers are even possible from an economics and physics standpoint. But SpaceX is perhaps the only company on Earth today positioned to make them a reality.
The idea here is simple: AI could become one of the largest markets in human history. That will only be possible if there are enough data centers to run the computing capacity required for a globally scaled AI economy. Thus, more data centers need to be built.
The problem is that data centers are resource intensive, using massive amounts of land, water, and energy. Putting them into space, at least on paper, has the potential to alleviate most of those terrestrial challenges. With a Starlink connectivity network already in place, SpaceX can easily connect these orbital data centers to ground-based relay centers.
Ark Invest, a major SpaceX shareholder, believes SpaceX could generate $300 billion in annual revenue by the end of this decade by renting computing power from orbital data centers. If that comes to pass, suddenly SpaceX’s $2 trillion market cap becomes much more palatable.
It remains to be seen whether SpaceX can actually pull off this major growth opportunity. But the potential is clearly there. And investors looking to go all in on AI stocks should put SpaceX at the top of their watch list.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
