SpaceX's recent IPO has sparked a fascinating debate: Could this space exploration giant join the elite club of tech titans known as the 'Magnificent Seven'? In this article, I'll delve into the factors that could shape SpaceX's future and explore whether it has what it takes to become one of the top tech stocks driving market gains.
The Rise of SpaceX
SpaceX's post-IPO performance has been nothing short of impressive, with a 28% gain in just two days, propelling it into the ranks of the world's largest publicly traded companies. This achievement places SpaceX in the same league as Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla - a group that has dominated the S&P 500 in recent years due to the AI boom.
The 'Magnificent Seven' Phenomenon
The term 'Magnificent Seven' is a playful reference to a 1960 Western, but it has come to represent the top tech stocks that have propelled the market forward. While the group's name suggests a fixed number, the reality is that it's not an exclusive club with strict membership criteria. As SpaceX's performance and market value rival those of the current Magnificent Seven, the question arises: Should we expand the group to the 'Magnificent Eight' or find another way to accommodate SpaceX's potential inclusion?
SpaceX's Case for Inclusion
SpaceX has several factors working in its favor. Its popularity among investors has driven impressive stock price gains, and its market value puts it on par with the Magnificent Seven, each of which boasts a market cap exceeding $1 trillion. Additionally, SpaceX's involvement in AI, rocket launches, and satellite-based internet connectivity positions it as a strong candidate for the group.
The AI Factor
SpaceX's AI ambitions are particularly noteworthy. The company has developed its Grok large language models and is building AI infrastructure on Earth. It even has plans to put data centers in space. However, it's important to note that SpaceX's AI business is not yet a significant revenue generator, and it requires substantial capital expenditures to support its growth. Last year, SpaceX's capex for this business alone reached a staggering $12 billion.
The Track Record of the Magnificent Seven
What sets the Magnificent Seven apart is their long-standing track record of revenue and profit growth. These companies have proven their ability to generate earnings consistently, even as they explore new growth opportunities. For example, Meta's social media business, through advertising, reliably delivers earnings growth, offsetting the risks associated with its AI investments.
SpaceX's Earnings Challenge
In contrast, SpaceX is not yet profitable, and the investments required to develop technologies for its future goals are substantial. Revenue levels also pale in comparison to its big tech peers; last year, SpaceX generated $18 billion in total revenue, while Alphabet brought in over $400 billion. The Magnificent Seven stocks built their businesses and technologies to deliver significant revenue and profit, which ultimately led to their trillion-dollar market values. SpaceX, on the other hand, entered the market with a trillion-dollar valuation but is still working on building its earnings engine.
Final Thoughts
SpaceX is undoubtedly an exciting company with immense potential. Its involvement in cutting-edge technologies like AI and space exploration makes it a fascinating prospect. However, from an earnings perspective, SpaceX has yet to prove itself. While it may eventually deliver explosive earnings growth, I believe it's essential to wait for SpaceX to demonstrate its earning power before considering it on par with the Magnificent Seven. Until then, SpaceX's journey towards profitability will be a captivating story to follow.
