Thinking Of Buying Spacex? Just Buy This Market-thumping …
After going public in June, SpaceX initially shot out of the gate, but the stock has since cooled off and is now roughly flat from its IPO price.
SpaceX’s unique business model and Elon Musk’s track record with Tesla have made it intriguing to investors, but the stock’s sky-high valuation and its seemingly far-fetched goal of space colonization offer reasons to be cautious.
For investors, there’s another stock that offers the upside potential of SpaceX without the downside risk. That’s Nvidia (NVDA +8.74%), which has become increasingly connected to SpaceX in recent months.
Nvidia needs no introduction at this point. The AI chip juggernaut is now the most valuable company in the world, coming off a 9% surge on its earnings report after CEO Jensen Huang said next year would grow by at least 70%, compared to analyst expectations of 45%.
But Nvidia’s strength alone doesn’t adequately explain why it’s an ideal substitute for a SpaceX investment. There’s more to the story than that.
Image source: Getty Images.
The Nvidia-SpaceX connection
SpaceX may be best known for its reusable rockets or its Starlink satellite internet service, but since its merger with xAI, the company has been increasingly focused on AI, which it sees as the future of the business, including projects orbital data centers, and that has meant a closer partnership with Nvidia.
On its earnings call, Nvidia said SpaceX was one of its lead partners for the new Vera CPU, which might come as a surprise to investors, as Nvidia’s biggest customers have been hyperscalers Microsoft and AI start-ups OpenAI.
Elon Musk also cemented the relationship between the two companies when he said that SpaceX would build exclusively on Nvidia, adding that the new Vera Rubin architecture was the best AI computing system available.
By forming an exclusive relationship with Nvidia, SpaceX gains preferential treatment, including early access to new products, and the two companies are also working on some products together, such as a space-optimized Vera Rubin NVL72 system for orbit.
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NASDAQ: NVDA
Nvidia
Premium Feature
Moneyball Superscore
96/100
Today’s Change
(8.74%) $18.32
Current Price
$227.98
Key Data Points
Market Cap
$5.5TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$220.90 – $230.47
52wk Range
$164.07 – $236.54
Volume
298.9M
Avg Vol
141.8M
Gross Margin
74.67%
Dividend Yield
0.12%
Why Nvidia is a better buy than SpaceX
Nvidia is coming off a quarter in which revenue grew 106%, adding roughly $50 billion in new sales in the quarter. The company continues to dominate the data center GPU market and has held firm against rising competition from rivals AMD and Intel, as well as from its customers, who are developing their own chips. That resilience is a testament to the superiority of Nvidia’s technology.
The biggest risk facing Nvidia seems to be that the AI boom will turn into a bubble. The stock is being priced as if its current profit trajectory isn’t sustainable and that profits will eventually fall, as the stock trades at just 18 times next year’s earnings per , and EPS estimates are ly to go up after Huang called for 70% growth next year.
If the AI boom does go bust, however, SpaceX stock looks much more vulnerable than Nvidia. Yes, SpaceX still has the space and connectivity businesses, but it’s staking its future on AI as the massive ramp to 10 GW shows. Its valuation is also much higher than Nvidia, putting it at a much greater risk of a crash.
Nvidia, on the other hand, is priced as if its profit growth will flatline after next year.
Because SpaceX is building on Nvidia chips, Nvidia will benefit from SpaceX’s success, but the gap in valuation, as well as Nvidia’s proven track record, significantly favors the chip-maker over SpaceX. Nvidia much higher floor than SpaceX, and potentially a higher ceiling, thanks to its leadership in AI chips.
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About the Author
Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.
Stocks Mentioned
Nvidia
NASDAQ: NVDA
$227.98
(+8.74%)+$18.32
Motley Fool Stock Advisor’s Latest Pick
—% Avg Return
Space Exploration Technologies
NASDAQ: SPCX
$140.87
(+0.89%)+$1.24
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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