Elon Musk Says This Is One of the Biggest Challenges for Public Companies

Elon Musk has two highly successful publicly traded companies: Tesla (NASDAQ: TSLA) and Space Exploration Technologies Corp. (NASDAQ: SPCX), better known as SpaceX. They're both valued at well over $1 trillion in market cap and are among the most popular growth investments for retail investors.

But running a public company is by no means easy, as Musk highlighted in a recent interview with The Economist, noting that a big challenge is "the pressure to have great results every single quarter." And that challenge can weigh on a stock's performance and introduce a great deal of volatility along the way, especially when it comes to companies that Musk runs.

Why Tesla and SpaceX are highly volatile investments

There is a ton of pressure on public companies, and what sends that to the next level for Tesla and SpaceX is that Musk also sets a high bar. With Tesla, his goal is to make it a leading robotaxi company and to produce humanoid robots for the public. At SpaceX, the visions are even grander, with space travel to Mars and putting data centers in space being even more ambitious targets that the business is aiming for.

While those kinds of goals do inspire people and attract many growth investors, they also put more pressure on the business to stay on track with those targets and deliver strong quarterly results from its day-to-day operations. A big reason that SpaceX, which isn't profitable but is valued at nearly $2 trillion, is so highly valuable is that investors are highly optimistic about what lies ahead. Even though the vision may take several years to achieve, investors are pricing the business as if its success were certain.

These stocks come with considerable risks

For people investing in either Tesla or SpaceX, it's important to understand the risks: while there is considerable growth potential, there's also tremendous risk. If there are signs that the business isn't on track to meet its goal, the investment thesis could unravel, and a lower valuation may prove justified given the greater uncertainty ahead.

Although there has been some apprehension around SpaceX of late and the stock has been falling in recent weeks, its valuation remains extremely high for an unprofitable and cash-burning business. While SpaceX and Tesla may both have intriguing long-term potential, investors should consider whether they can stomach the risk and volatility that come with owning these stocks, as they could have a lot of room to fall if doubts arise about their long-term success.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.