Want to Buy SpaceX? Why You May Be Better Off Just Buying Alphabet's Stock
Key Points
Alphabet owns an estimated 4% of SpaceX stock, based on its recent earnings numbers.
The tech company's earnings rose significantly last quarter, in large part due to its investment in SpaceX.
Its business is financially strong, making it a safer overall investment than the space company.
Space Exploration Technologies Corp (NASDAQ: SPCX) captivated the market when it went public back in June. And while it's down considerably from its peak, its valuation remains massive at around $1.4 trillion as of the end of last week. Growth opportunities in not only space but also artificial intelligence (AI) as a whole have investors excited about its potential.
However, there will inevitably be considerable volatility in the stock. The company, better known as SpaceX, isn't profitable and is burning through a ton of cash as it invests in its future growth opportunities. A better option for investors may simply be to invest in a top tech company that already holds a large position in SpaceX: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
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Alphabet owns a considerable amount of SpaceX shares
When Alphabet reported earnings last month, one of the large, eye-popping figures was just how much of a gain it posted from its investments -- more than $99 billion. To put into context how massive that is, consider that its core operating income was just $41 billion. The company's stake in SpaceX played a significant role in its earnings being as high as they were.
That's because, based on the stock's valuation as of the end of June, Alphabet owned more than $94 billion worth of SpaceX stock, representing about 4% of the total business. Alphabet has already benefited significantly from its investment, and investors who want exposure to SpaceX without directly investing in the space company may prefer to simply invest in Alphabet.
Why Alphabet may be the better investment option, even for SpaceX fans
Investing in SpaceX can be highly risky, as many investors are realizing of late. Due to its lack of profitability and considerable long-run risks, it may be a highly volatile investment to own. And while it declined by 37% in July, there may still be more room for its shares to fall even lower in the weeks and months ahead.
Alphabet, meanwhile, with a robust business that centers around Google Search and YouTube, is in much better financial shape. Its investment in SpaceX helped its bottom line this past quarter, but Alphabet is a much more stable company to invest in for the long term. In the trailing 12 months, the company has generated more than $53 billion in free cash flow, even as it has invested heavily in AI.
Rather than taking a chance on SpaceX directly, gaining exposure to it through an investment in Alphabet may be a much safer and overall better move for growth investors.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.