SpaceX (NASDAQ:SPCX) and Nvidia (NASDAQ:NVDA) are two of the most innovative companies on earth. And after the former went public yesterday (12 June) at a massive valuation, they’re also among the world’s largest firms.
The great thing about the stock market though is that you don’t necessarily have to choose. Alphabet or Microsoft? Visa or Mastercard? Lloyds or Barclays? There’s nothing stopping investors buying all of these shares for a portfolio.
But looking at SpaceX and Nvidia today, which do I prefer for the next couple of years? Let’s find out.
How do they make money?
I’m sure everyone is familiar with both companies. But for those unsure how each makes money, Nvidia’s largest division is Data Centre, which provides the massive computational power required for AI services and machine learning.
Meanwhile, most of SpaceX’s revenue comes from rocket launches and Starlink, its satellite mega-constellation that provides high-speed, low-latency internet access worldwide. But it now has a third division after the acquisition of xAI, Elon Musk’s AI start-up.
| % of total revenue (last fiscal year) | |
| Nvidia Data Centre | 90% |
| SpaceX Connectivity (Starlink) | 61% |
Which is growing faster?
While both are high-growth companies, there’s only one winner here today. That’s Nvidia, which grew revenue by an astonishing 85% to $81.6bn in its last quarter. Operating profit skyrocketed 147% to $53.5bn!
By contrast, SpaceX’s revenue increased by 15% to $4.7bn in the first quarter. While still strong, that was a slowdown, and the space-cum-AI firm’s profits are currently in negative territory.
What about valuations?
Turning to valuation, Nvidia’s stock is trading at a forward price-to-earnings (P/E) ratio of 22.8. That strikes me as cheap for a world-class company at the heart of the AI revolution that’s still growing rapidly.
As mentioned, SpaceX’s bottom-line profits are temporarily non-existent, so we can’t calculate a P/E multiple. But based on last year’s revenue, the stock commands a sky-high price-to-sales multiple near 100 (Nvidia’s is 19).
Unlike SpaceX, the AI chip firm is a cash machine, enabling it to approve a massive $80bn share buyback in May, on top of $39bn it already had left to repurchase. Nvidia also hiked its dividend by 2,500%, albeit the yield is still tiny at 0.5%.
Of course, SpaceX may well grow into its valuation in future. But again, Nvidia is the clear winner here today.
Prospects
What about long-term growth prospects? Well, here is where I think SpaceX might have the edge. Its Starlink network has no real competition and is just scratching the surface of its potential.
And if SpaceX can use its rockets to put data centres in space in future, customers could rent computing power, storage, or AI training capacity much as they do from Amazon Web Services today (but cheaper). That could see revenue explode higher (though this is far from guaranteed).
Meanwhile, Nvidia has mounting competition, as rivals and its own customers are developing their own chips to reduce costs and overreliance. This makes the longer-term demand picture a bit more blurry.
Currently, I have Nvidia in my portfolio. The firm is growing rapidly, generating enormous profits, and the stock is infinitely cheaper than SpaceX.
Things might change in future, but for now I think Nvidia is the more attractive stock to consider buying. SpaceX needs to cool off first.
Should you invest £5,000 in Nvidia right now?
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Ben McPoland owns shares in Nvidia and Visa.
